New Delhi, Jan 12 (UNI) India’s banking sector has recorded a sharp post-pandemic revival, marked by rapid expansion in assets, deposits and credit, reflecting renewed financial intermediation and deeper credit penetration across the economy, said SBI report released here on Monday.
However, the accelerating pace of lending relative to deposit mobilisation is also heightening liquidity and risk concerns, according to a detailed trend analysis by SBI Research.
Bank assets expanded significantly after years of subdued growth, rising from about 77 per cent of GDP in FY21 to nearly 94 per cent by FY25.
Over a longer horizon, the scale of the banking system has grown manifold, with total assets increasing from ₹23.6 lakh crore in FY05 to over Rs 312 lakh crore in FY25, signalling the growing role of banks in economic expansion.
Deposits and advances have also risen sharply over the past two decades. Deposits surged from Rs 18.4 lakh crore in FY05 to Rs 241.5 lakh crore in FY25, while advances expanded from Rs 11.5 lakh crore to Rs 191.2 lakh crore during the same period.
Notably, credit growth has outpaced deposit growth since FY21, pushing the system-wide credit–deposit ratio up from 69 per cent in FY21 to 79 per cent in FY25, with incremental ratios frequently breaching the 100 per cent mark.
Public sector banks, which had been steadily losing market share since FY08, are showing signs of recovery. After years of balance sheet stress, these banks have begun reclaiming their share in advances, reflecting improved asset quality, stronger capital positions and a renewed appetite for lending.
While overall CASA ratios have remained broadly stable at around 37 per cent, underlying trends differ across bank groups.
Private sector banks have strengthened their low-cost deposit base, while foreign banks have seen erosion in CASA shares, indicating divergent funding dynamics within the system.
The report highlights a growing mismatch in the maturity profiles of deposits and advances, particularly in the six-month to three-year buckets.
Nearly 35 per cent of advances are concentrated in the one-to-three-year maturity segment, pointing to a rising tendency of prepayments and increasing asset-liability management challenges for banks.
A key area of concern flagged in the analysis is the sharp rise in unsecured lending. Unsecured advances have jumped from Rs 2 lakh crore in FY05 to nearly ₹47 lakh crore in FY25, raising their share in total lending to about 24.5 per cent from 17.7 per cent two decades earlier.
Public sector banks account for nearly half of this exposure, underscoring potential risk accumulation in the system.
Capital adequacy has improved across most public sector banks, with CRAR levels rising steadily between FY21 and FY25. While private sector banks continue to maintain higher capital buffers overall, a number of them have witnessed a decline in CRAR in FY25, highlighting emerging pressure points.
Banks’ exposure to sensitive sectors such as real estate and capital markets has also increased continuously, reaching nearly ₹50 lakh crore, or about 27 per cent of total advances. Private sector banks account for roughly half of this exposure, followed closely by public sector banks.
The structure of banking employment has undergone a major transformation. Total employment has nearly doubled over two decades, with the share of officers rising sharply, reflecting skill intensification and a shift towards higher-value roles. At the same time, contingent liabilities of banks have expanded almost eighteen-fold since FY05, driven largely by outstanding forward exchange contracts.
An econometric assessment in the report suggests that while rising credit intensity supports profitability up to a point, excessive leverage erodes incremental gains. The optimal credit–deposit ratio is estimated to lie between 76 and 80 per cent for public and private sector banks. Beyond this threshold, the marginal impact of additional lending on profitability declines sharply, indicating heightened financial stability risks.
The analysis also points to persistent regional imbalances in credit deployment. Southern, western and northern regions continue to dominate credit absorption, while eastern and north-eastern regions lag behind. Several large states continue to report low credit–deposit ratios, indicating underutilisation of financial resources and weak credit absorption capacity.
District-level data further reveal high concentration, with a small number of districts accounting for a disproportionately large share of deposits and credit, underscoring uneven spatial development of banking activity.
