Private sector banks outpaced their state-run peers in deposit mobilisation in the second quarter, reinforcing a trend that has been visible across the banking system as lenders compete more intensely for stable funding. The latest quarterly pattern suggests that private banks have retained an edge in attracting deposits even as credit demand remained firm across the industry.
Deposit Race Intensifies
The divergence in deposit mobilisation comes at a time when banks are under pressure to protect margins, manage liquidity and sustain loan growth without over-reliance on volatile funding sources. Private banks have generally benefited from stronger retail franchise networks, more active digital acquisition, and a sharper focus on granular deposits, helping them widen the gap with public sector banks in the quarter.
For state-run lenders, deposit growth has remained steady but comparatively less dynamic. That matters because deposit mobilisation is the foundation of loan expansion: banks that can gather low-cost, sticky deposits are better placed to lend profitably and absorb funding costs. In the current environment, where competition for deposits has remained elevated, the ability to mobilise funds efficiently has become a key differentiator.
The broader implication is that private banks are entering the second half of the financial year with relatively stronger liability momentum. That could support credit growth, especially in retail, SME and selected corporate segments, while also giving them more flexibility in pricing loans and managing net interest margins.
Loan Growth Stays Firm
From a lending perspective, state-run banks posted advances growth in the range of 12.59 per cent to 29.83 per cent year-on-year in the second quarter. Private banks, meanwhile, reported loan growth ranging from 16.3 per cent to 40 per cent over the same period. The numbers indicate that credit demand remained healthy across both ownership groups, but private lenders again displayed a wider and more aggressive growth band.
That spread is significant. It suggests that private banks are not only mobilising deposits faster, but are also deploying those funds into loans at a pace that can sustain earnings momentum. The upper end of the range points to lenders with strong execution, diversified portfolios and the ability to scale without sacrificing asset quality discipline.
For PSU banks, the advances growth range remains respectable and reflects continued traction in retail, agriculture, MSME and corporate lending. However, their deposit mobilisation challenge could become a constraint if funding costs remain elevated or if competition from private banks intensifies further. In a system where loan growth is still healthy, the relative pace of deposit accumulation will increasingly determine who can expand faster and more profitably.
Funding Edge Matters
The current quarter's pattern also highlights a structural shift in Indian banking. Private banks have spent years investing in technology, customer acquisition and liability franchise building, and those efforts are now showing up in their deposit numbers. Their ability to gather funds from retail customers, affluent households and digitally engaged savers has improved their funding mix and reduced dependence on bulk deposits.
By contrast, public sector banks continue to benefit from their large branch networks and longstanding customer base, but they often face a more complex operating environment. Their deposit growth can be influenced by legacy systems, slower product innovation and a heavier reliance on institutional or bulk funding in some cases. Even when advances growth is strong, the funding side can lag the lending side, creating pressure on spreads.
For investors, the message is clear: deposit mobilisation is no longer a back-office metric, but a central indicator of competitive strength. Banks that can consistently grow deposits faster than loans, or at least in line with them, are better positioned to preserve profitability and avoid liquidity stress.
The second-quarter data therefore points to a familiar but important conclusion. Private banks remain ahead in the race for deposits, and that advantage is translating into a stronger platform for credit growth. PSU banks are still growing at a healthy clip, but they will need to defend their liability franchise more aggressively if they want to narrow the gap in the quarters ahead.