However, the speed of expansion has been much greater in the case of progress. The Credit-Deposit (CD) ratio increased to 79 percent in FY25 from 69 percent in FY21.
The ERD economists warned that the sharp increase in unsecured lending increases risk sensitivity. Unsecured advances rose from ₹2 lakh crore to ₹46.9 lakh crore, with the share rising from 17.7 per cent in FY05 to 24.5 per cent in FY25, underscoring the potential accumulation of credit risk, according to their analysis.
They highlighted that the contingent liabilities of ASCBs (all scheduled commercial banks) have increased at an unusual pace, growing from ₹28.3 lakh crore in FY05 to ₹505.5 lakh crore (an increase of almost 18 times). The share of liabilities under outstanding forward exchange contracts amounts to almost 93 percent of total contingent liabilities
“Indian banks have shown a strong post-pandemic balance sheet recovery. Bank asset growth recovered sharply after FY21, from 77 percent of GDP to 94 percent in FY25, on the back of renewed credit intermediation and financial deepening,” the ERD economists said.
They noted that exposure to sensitive sectors (such as commercial real estate) continues to rise and has currently reached ₹50 lakh crore (nearly 27 per cent of total advances). Of the total exposure to sensitive sectors (FY25), 50 percent is attributed to private sector banks, followed by PSBs at 47 percent.
“The market share of public sector banks (PSBs) is showing a sustained revival. After a prolonged decline since FY08, PSBs are gradually regaining their market share, indicating balance sheet recovery and renewed credit appetite,” the report said.
The economists noted that CASA (current account, savings account) stability masks divergent trends among banking groups. While overall CASA ratios remained around 37%, private banks strengthened CASA shares while foreign banks witnessed erosion.
Further, there is a gap between the maturity profile of the share of deposits and advances of six months to one year (where 16 percent of deposits mature, while 9.8 percent of loans are paid off) and a time frame of one to three years (where 24 percent of deposits mature, while 35.1 percent of loans are paid off).
The 35 percent share of advances in the period of 1 to 3 years indicates an increasing propensity for early repayment among borrowers.
Capital adequacy improved across most PSBs, with CRAR (capital to risk-weighted assets ratio) levels increasing for almost all PSBs between FY21 and FY25. While the CRAR level for private sector banks is high, some banks (8 out of 21) saw a decline in FY25 compared to FY21.
“Our threshold regression estimates indicate an optimal CD ratio of 76 to 80 percent for PSBs and private banks and 65 to 70 percent if foreign banks are included. Beyond this, gains in profitability decline sharply, indicating that excessive debt reduces banks’ incremental profitability,” the economists said.
The report noted that employment in the banking sector has almost doubled in two decades. The total number of employees rose from 8.6 lakh to 18.1 lakh, with private banks accounting for 46 per cent and PSBs 42 per cent. The proportion of officers rose from 36 percent to 76 percent, indicating an intensification of skills and a preference for higher value positions.
Published on January 12, 2026
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