PSU Banks Surge in Loan Growth as Demand Rises, Amid Deposit Mobilization Challenge

PSU Banks Surge in Loan Growth as Demand Rises, Amid Deposit Mobilization Challenge​

Advances Outpacing Deposits Across State-Owned Lenders​

Provisional business updates released by nine state-owned banks for the quarter ended June 30 show that advances are growing significantly faster than deposits. This trend reflects sustained and strong demand for credit across the banking sector.

While lending rates are accelerating, securing sufficient customer funds remains a persistent challenge for these major financial institutions. The disclosures highlight an early performance snapshot of the state-owned banking segment in the new fiscal year.

Credit Growth Figures Across Major PSU Banks​

Several large lenders demonstrated robust loan expansion during the reporting period. Bank of Baroda reported global advances increasing by 17.4 per cent year-on-year, while its deposits rose by 13.8 per cent.

Bank of India posted a healthy loan growth of 18.64 per cent against a 14.92 per cent rise in deposits. Canara Bank showed strong credit expansion, reporting a 18 per cent increase in loans, supported by an 11.7 per cent expansion in deposits.

Central Bank of India emerged as the fastest-growing among these banks regarding credit. Its advances jumped by 28.8 per cent year-on-year, although deposit growth stood at 11.7 per cent. UCO Bank reported a 21.3 per cent growth in advances against an 11 per cent increase in deposits.

Key Drivers: Retail and MSME Lending Surge​

Retail, agriculture, and MSME (RAM) loans continued to be the principal catalysts driving credit expansion within the banking sector. This segment is demonstrating particular strength across PSUs.

Canara Bank led its peers with a 21.3 per cent growth in domestic RAM loans. Similarly, Bank of India recorded 19.7 per cent growth in this critical lending category, followed by Bank of Baroda at 18.5 per cent. Indian Bank and Union Bank also posted double-digit growth rates in the RAM segment.

Banks Face Pressure on Deposit Mobilization​

Despite the strong performance in lending, banks are facing intense competition when trying to attract low-cost current and savings account (CASA) deposits. This challenge is reflected across multiple PSUs.

Union Bank of India stood out due to relatively weak deposit mobilization. Its deposits rose by only 3.5 per cent year-on-year even as advances increased 12.5 per cent. Union Bank's domestic credit-deposit ratio moved above 83 per cent.

The rising pace of lending has pushed credit-deposit ratios higher at several banks. UCO Bank's ratio climbed to 82.15 per cent from 75.38 per cent a year prior. Punjab National Bank's global credit-deposit ratio improved to 73.92 per cent from 71.1 per cent previously.

Implications for the Banking Sector​

The business updates provide an early indication of the banking sector’s performance in FY27. It clearly shows that credit demand remains resilient across the state-owned banks.

However, maintaining this accelerating loan growth will depend heavily on the ability of these banks to mobilize deposits at a commensurate and faster pace. The continued struggle for low-cost funding suggests an ongoing competitive pressure within the financial landscape.