Indian Banks Face Dual Threat: Deposits Flee, Non-Banks Gain Lending Ground

• Indian banking sector's deposit growth decelerated to 9.05% by mid-December 2025, down from 11% a year ago, threatening single-digit growth for FY26.
• Credit offtake rose to 11.8% by mid-December, driven by policy measures boosting consumption, leading to high credit-to-deposit ratios, especially for private lenders.
• Banks face margin pressure as households prefer higher-paying small savings instruments over deposits, and an easing interest rate regime makes managing margins difficult.
• A significant concern for banks is the loss of market share in lending to non-bank finance companies (NBFCs) and the bond market.
• RBI data shows non-bank credit grew at 19.1% by November 2025, compared to banks' 11.4%, indicating a shift in financial intermediation.

Why It Matters: Indian banks are struggling with slowing deposit growth and losing lending market share to non-banks, impacting profitability.