Deposit Growth Outpaces Credit In Indian Banks: Report
Rising deposits mark 7.3 per cent growth compared to December 2023, outpacing 6.8 per cent credit growth
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Deposit growth in Indian banks has outpaced credit growth over the past nine months, according to the report by CareEdge. As of 6 September 2024, deposits saw a 7.3 per cent increase compared to December 2023, reaching Rs 215.5 lakh crore, while credit offtake grew by 6.8 per cent to Rs 170.5 lakh crore.
The report attributes the slower credit growth to the Reserve Bank of India's (RBI) measures, including higher risk weights on unsecured loans and a higher base effect. In the fortnight ended 6 September 2024, credit offtake expanded by Rs 10.9 lakh crore over the past eight months, with personal loans, MSMEs, and commercial real estate driving this growth.
Sequentially, credit offtake increased by 0.6 per cent, whereas deposits saw a 1.1 per cent rise during the same period. CareEdge anticipates that credit growth might face challenges in the coming months, particularly with the proposed Liquidity Coverage Ratio (LCR) norms, which could constrain bank credit growth.
The report also indicates a rise in certificates of deposit (CD) issuances, which grew by more than 65 per cent year-on-year, reaching Rs 4.51 lakh crore during FY25 (till September 6). Similarly, commercial paper (CP) issuances increased to Rs 6.28 lakh crore during FY25 (till August 31), compared to Rs 5.88 lakh crore in the same period last year.
The Credit-to-Deposit (CD) ratio stayed around 80 per cent, with a slight decline to 79.1 per cent as of 6 September 2024. Incremental CD ratios for scheduled commercial banks dropped from 95.8 per cent at the end of March 2024 to 95.3 per cent as of 6 September, indicating that credit uptake has not kept pace with deposit growth.
While the report shows a consistent rise in deposit growth, the overall credit-to-total assets ratio witnessed a slight dip, standing at 68.6 per cent for the fortnight ending 6 September 2024. Government investments to total assets declined by 11 basis points to 25.7 per cent, with overall government investments reaching Rs 63.8 lakh crore, growing 6.7 per cent year-on-year.
The findings highlight that while credit growth is trending downward, deposit growth is expected to remain strong as banks continue to strengthen their liability franchise in FY25. This trend suggests a cautious approach from banks towards credit growth amidst tighter regulations and evolving market dynamics.
