Deposit Growth Struggles To Keep Pace With Credit Demand

CareEdge Ratings in a report has said that credit offtake continues to moderate and is converging with the deposit growth highlighting the system-wide challenge in shoring up deposits. Credit offtake increased by 5.3 per cent compared to December 2023, to reach Rs 168.1 lakh crore as of 26 July 2024. 

Growth in personal loans and micro, small and medium enterprises (MSMEs) continues to account for this increase. Meanwhile, sequentially credit growth remained flat. This slowdown can be attributed to RBI measures like higher risk weights on unsecured loans and a higher base effect.

The rating agency stated that deposits rose at 5.5 per cent compared to December 2023 and reached 211.9 lakh crore as of reported July 26, 2024), driven by growth in time deposits. Sequentially deposits increased by 0.1 per cent. The short-term weighted average call rate (WACR) has remained the same at 6.47 per cent as of 2 August 2024, compared to 6.39 as of 4 August 2023.

The credit to total assets ratio remained flat compared to the previous fortnight and stood at 68.6 per cent for the fortnight (July 26, 2024). The government investment to total assets ratio witnessed a downtick of 1 bps and stood at 25.7 per cent. Meanwhile, overall government investments stood at Rs 63.1 lakh crore as of 26 July 2024, reporting a growth of 8.1 per cent year-on-year (YoY) and remained flat sequentially.

On YoY performance, credit saw a growth of 13.6 per cent, which was relatively slow compared to last year which saw a growth of 19.7 per cent, on the other hand, deposits saw a growth of 10.6 per cent. Deposit growth, though showing improvement, has continued to lag credit growth in the past year, it added.