RBI Governor Stresses Absence Of Prescribed Credit-Deposit Ratio For Banks
Reserve Bank of India (RBI) Governor Shaktikanta Das has cautioned banks against exuberant lending practices and urged them to adopt prudential measures to mitigate risks associated with a growing credit-deposit ratio. The RBI has previously highlighted the risks of an imbalanced credit-deposit ratio, which has become more pronounced with deposit growth hovering around 12-13 per cent, while bank credit is expanding by nearly 15 per cent. The concerns surrounding a widening credit-deposit ratio have impacted bank stocks, leading to a notable slide in the stock markets.
Das, speaking in an interview at the World Economic Forum convention in Davos, emphasised the need for a clear correlation between credit and deposit growth but clarified that the RBI does not plan to mandate a specific ratio. Despite not prescribing a particular credit-deposit ratio, there is a general sentiment that it should be around 70-75 per cent. The recent decline in HDFC Bank's shares, attributed to its high credit-deposit ratio of 110 per cent for the quarter ending 31 December 2023, has heightened concerns about the impact on growth, with some brokerages expressing fears that the high ratio could constrain deposits.
While addressing the issue, Das assured that, at the systemic or individual bank level, the RBI does not foresee significant risks from credit growth outpacing deposit growth. The governor underscored the robustness of the Indian banking sector at the systemic level. Das also highlighted the RBI's proactive measures in November 2023, addressing signs of exuberance in lending, particularly in the personal loans segment.
The RBI had increased the risk weightage on unsecured loans for banks and non-banking financial companies (NBFCs) to preemptively address potential stress in the sector. Das noted that timely action was taken to prevent the buildup of excessive risks in specific sub-sectors, contributing to the current manageable situation.
