MUMBAI: A cross-country study of banking systems shows that India’s credit depth remains significantly lower than that of advanced economies, making a case for foreign banks to expand operations and establish regional centres to capture long-term credit growth opportunities, Care Ratings said in a report that analyses credit and deposits growth to GDP and CD ratios of India vs other countries like China, USA, UK, Japan Germany and France.

Credit to GDP

The study shows that the UK, France and China report high bank credit-to-GDP ratios, indicating extensive corporate, household and cross-border lending. Germany and Japan also display elevated credit penetration, consistent with bank-centric financial systems. On the other hand, the credit-to-GDP ratio in the US is relatively low due to the dominant role of bond markets, securitisation and non-bank financial intermediaries, according to the report.
India’s moderate ratio of 53% indicates that formal credit is improving but remains underpenetrated relative to economic size.

Deposit to GDP

The ratings agency study shows that the bank deposits-to-GDP ratios are highest in France, China and Japan, supported by high household savings and the presence of large international banking operations. The UK’s comparatively lower deposit ratio, despite very high credit penetration, highlights greater dependence on wholesale and market-based funding, according to the report.

The US and India show balanced deposit mobilisation relative to GDP, consistent with stable household savings but diversified funding ecosystems.

Credit to Deposit Ratio
According to the Care Ratings study, advanced economies such as Germany and the UK operate with structurally higher credit-deposit (CD) ratios due to greater reliance on wholesale funding and overseas lending. In contrast, India, China, France and the US maintain lower ratios due to strong deposit bases and diversified financing channels. Japan’s CD at 60% lags others, reflecting impact of the 1990s global financial crisis which deepened risk aversion among both banks and borrowers and led to conservative borrowing behaviour.

In Japan, the ageing population, with limited investment alternatives, continues to park deposits with Japanese banks. As a result, the excess deposit base outpaces credit offtake, keeping the CD ratio structurally low for the country.

Foreign investments
Care Rating stated that India’s structural advantage strengthens its attractiveness as a growth market and makes a case for foreign banks to expand operations in the country to capture long-term credit growth opportunities. In the recent months, India has attracted significant interest from foreign investors to the financial sector. The most notable being Emirates NBD investing ?26,850 crore to acquire 60% stake in RBL Bank; MUFG Bank investing Rs 39,600 crore to acquire 20% state in Shriram Finance, and Sumitomo Mitsui Banking Corporation acquiring nearly 25% stake in Yes Bank for more than Rs 14,000 crore.

“Looking ahead, India’s banking sector is well positioned to benefit from the formalisation of the economy, rising credit demand from the retail and MSME segments, and continued improvements in asset quality, supported by regulatory reforms and digital adoption,” Care Ratings said.