Deposit Growth Outpaces Credit Offtake In Banking Sector: Report

Deposit growth has significantly outpaced credit offtake in the Indian banking sector, according to the latest fortnightly credit and deposit update by CareEdge Ratings. For the fortnight ending 12 July 2024, credit offtake grew by 13.9 per cent year-on-year to reach Rs 168.1 lakh crore, while deposits increased by 11.3 per cent year-on-year, reaching Rs 211.8 lakh crore.

The report attributes the slower credit growth to a higher base effect and banks' efforts to manage the credit-to-deposit (CD) ratio. The CD ratio for the fortnight stood at 79.4 per cent, a slight increase of 10 basis points compared to the previous fortnight. Excluding the impact of the HDFC and HDFC Bank merger, the CD ratio was 77.4 per cent, down from 77.6 per cent a year ago.

Despite a 14.0 per cent year-on-year increase in credit offtake, there was a 0.4 per cent sequential decline for the fortnight ended July 12, 2024. In absolute terms, credit offtake expanded by Rs 20.4 lakh crore over the last twelve months. This slower growth rate is also due to RBI measures such as higher risk weights on unsecured loans and banks' focus on maintaining a balanced CD ratio.

In the last six months, credit offtake grew by 5.3 per cent, whereas deposit growth stood at 6.0 per cent. For the past three months, credit offtake increased by 2.3 per cent, while deposit growth was 3.4 per cent. These figures indicate that credit offtake has consistently lagged behind deposit growth, suggesting potential challenges for credit uptake in the coming year.

The report also highlights a significant increase in the use of certificates of deposits (CDs) by banks, despite higher associated costs. This strategy aims to prevent constraints on credit uptake due to robust deposit growth. The outstanding CDs as of July 12, 2024, stood at Rs 424.8 crore, reflecting a year-on-year growth of 42.7 per cent. Similarly, the outstanding commercial paper was Rs 440.8 crore, showing a year-on-year growth of 1.4 per cent.

Additionally, the credit to total assets ratio declined by approximately 34 basis points compared to the previous fortnight, standing at 68.6 per cent for the fortnight ending July 12, 2024. Meanwhile, the government investment to total assets ratio saw an uptick of 59 basis points, reaching 25.8 per cent. Overall government investments were Rs 63.2 lakh crore, reporting a year-on-year growth of 8.6 per cent and a sequential increase of 2.4 per cent.

While credit growth has slowed, deposit inflows have outpaced credit offtake, leading to a shift in the banking sector dynamics. This trend indicates that banks are focusing on maintaining a balanced CD ratio while navigating the challenges posed by regulatory measures and market conditions.