Kerala-based banks are attracting a large share of their deposits from Malayalis, including the state’s sizeable NRI community. But much of that money is being deployed as loans in other states, raising questions about the role Kerala plays in the growth strategies of its home-grown banks.
An analysis of 2025-26 figures shows a significant gap between the share of deposits mobilised from Kerala and the share of loans disbursed within the state.
Five major Kerala-linked banks — Federal Bank, South Indian Bank, CSB Bank, Dhanlaxmi Bank and ESAF Small Finance Bank — sourced between 37 percent and 75 percent of their deposits from Kerala. Yet, only 18 percent to 53 percent of their total lending was deployed in the state. The remaining credit largely went to markets outside Kerala, according to an analysis reported by Business Benchmark.
The sharpest mismatch is visible at ESAF Small Finance Bank.
Malayalis accounted for 72.9 percent of ESAF’s total deposits. However, only 33.5 percent of the bank’s lending was in Kerala.
The pattern is similar across the other banks:
Federal Bank: 58.6 percent of deposits came from Kerala, while only 26.6 percent of loans were deployed in the state.
South Indian Bank: Kerala accounted for 62.9 percent of deposits, against 31.3 percent of loans.
Dhanlaxmi Bank: 74.8 percent of deposits came from Kerala, while 52.8 percent of lending was in the state.
CSB Bank: Kerala contributed 37.2 percent of deposits, but accounted for just 17.8 percent of loans.
The reason is largely linked to Kerala’s strong deposit base.
The state’s substantial NRI deposits and household savings allow banks to mobilise funds at relatively competitive costs. But when it comes to deploying those funds, banks may find greater opportunities in states with larger industrial bases, expanding businesses and stronger demand for corporate and commercial credit.
In other words, Kerala provides a deep and relatively stable funding pool, while other parts of India offer more opportunities to deploy that money profitably.
Banks can no longer focus solely on maintaining a traditional Credit-Deposit (CD) ratio within Kerala. As their operations have expanded beyond the state, they are increasingly using their Kerala deposit base to fund growth across the country.
This represents a significant shift from the traditional perception of Kerala-based banks as institutions primarily serving the state.
The strategy also reflects the changing nature of these banks. As they expand their branch networks and businesses across India, their lending decisions are increasingly driven by national market opportunities rather than the geographical location of their deposit base.
The trend raises an important question: If a substantial portion of a bank’s deposits comes from Kerala, how much of that money should return to the state as credit?
For Kerala’s businesses, particularly small and medium enterprises, a lower share of local credit could mean greater competition for bank finance. At the same time, banks argue that they must deploy funds where risk-adjusted returns and growth opportunities are stronger.
The numbers therefore highlight a broader transformation in Kerala’s banking landscape: the state is increasingly becoming a major source of deposits for banks whose lending ambitions extend well beyond Kerala.
