Credit Growth Slows As Deposits Keep Pace In Indian Banking Sector
On a year-on-year basis, credit growth stands at 13.6 per cent, a decline from 19.6 per cent in the previous year, while deposits have grown by 10.9 per cent
Credit growth in the Indian banking sector has shown signs of slowing down, with a recent report indicating a 6.2 per cent increase in credit offtake compared to December 2023, reaching Rs 169.5 lakh crore as of August 23, 2024. Personal loans and lending to Micro, Small, and Medium Enterprises (MSMEs) were the main contributors to this growth, although large corporate credit also played a role. Sequentially, credit growth was modest at 0.4 per cent.
In contrast, deposits have also risen by 6.2 per cent over the same period, totaling Rs 213.2 lakh crore, driven primarily by time deposits. However, there was a slight sequential decline of 0.02 per cent. This trend indicates that deposit growth has kept pace with credit growth, reflecting a more balanced financial environment.
The slowdown in credit growth can be attributed to recent measures by the Reserve Bank of India (RBI), which included higher risk weights on unsecured loans and proposed Liquidity Coverage Ratio (LCR) norms. These regulations may pose challenges for bank credit growth in the coming months. Despite these hurdles, the Short-term Weighted Average Call Rate (WACR) has narrowed to 6.50 per cent as of August 23, 2024, compared to 6.75 per cent a year earlier.
On a year-on-year basis, credit growth stands at 13.6 per cent, a decline from 19.6 per cent in the previous year, while deposits have grown by 10.9 per cent. The credit-to-total assets ratio increased by 48 basis points to 69.0 per cent, and the investment-to-total assets ratio rose by 24 basis points to 25.9 per cent. Overall investments reached Rs 63.6 lakh crore, reflecting a 7.9 per cent increase year-on-year.
As banks focus on strengthening their liability franchises, the importance of deposits is expected to grow in FY25. The credit-deposit (CD) ratio has been hovering around 80 per cent since September 2023, currently standing at 79.5 per cent. The banking sector may face challenges in sustaining credit growth, but the steady deposit growth provides a solid foundation for future financial stability.
