Is India’s credit growth leaving half the country behind? SBI Research shows stark divide

Even as India’s banking system has seen a steady rise in credit growth in recent years, eastern and northeastern states continue to lag far behind the country’s western and southern regions, according to an SBI Research report.

The report said India’s credit-deposit (CD) ratio, a key indicator of how much banks lend against the deposits they mobilise, has increased steadily to about 80% in 2024-25 from around 69% in 2020-21.

However, this aggregate figure masks wide variations across states and regions.

Southern and western India dominate credit deployment with CD ratios above 90% on average, while eastern and northeastern regions remain below 50%, indicating weaker credit absorption and lower penetration of formal finance, SBI Research noted.

Large eastern states such as Odisha, Bihar, Jharkhand and West Bengal continue to report CD ratios below 52%, highlighting persistent challenges in credit absorption despite sizeable deposit bases, the report said .

On the other hand, Tamil Nadu has maintained a CD ratio above 100% over the past decade, while Andhra Pradesh’s ratio rose sharply to above 150% in 2024–25.

SBI Research said the persistence of regional imbalances points to structural differences in economic activity, investment climate and credit absorption capacity.

Economically advanced regions typically attract higher credit flows, while less developed and predominantly rural regions tend to see deposits flow out to other parts of the country.

As many as 226 districts across India have CD ratios below 50%, while 75 districts report ratios above 150%. Nearly 46% of districts fall in the 50–100%, with southern India accounting for a relatively larger share of high CD ratio districts.

The report said improving credit deployment in lagging regions would require a more conducive ecosystem for investment.

It also flagged that a sustained rise in CD ratio reflects strong loan demand but could strain liquidity buffers and increase reliance on market funding if it remains elevated.

“The incremental CD Ratio numbers, which crossed 100% in a number of instances, shows the increasing demand for credit, despite lean deposits,” the report said.

“While a rising CD ratio reflects improved credit intermediation and stronger demand for bank lending, persistently high levels can strain banks’ liquidity positions, reduce available buffers and increase dependence on market-based funding,” it added.