Bank Deposit Growth Surpasses Credit Expansion: Report Year-over-year (YoY), credit grew by 13.4 per cent, a significant reduction from the 19.8 per cent growth recorded in the same period last year.
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The Indian banking system has witnessed a significant shift in deposit growth, which has surpassed credit expansion over the last eight months, as per data compiled by CARE Ratings. This trend marks a notable development as banks continue to strengthen their liability franchise amid regulatory changes and a shifting economic landscape. The report highlighted that deposits expanded by INR 14.7 lakh crore, reaching INR 215.5 lakh crore as of September 2024, while credit grew by INR 10.9 lakh crore, pushing the total to INR 170.5 lakh crore in the same period.
The demand for personal loans, as well as borrowing in the Micro, Small and Medium Enterprises (MSME) and commercial real estate sectors, have primarily driven credit growth in recent months. However, experts have observed a downtrend in credit expansion compared to previous years.
Saurabh Bhalerao, associate director of BFSI Research at CARE Ratings, explained that credit growth has been decelerating and is now converging with deposit growth. On a sequential basis, credit growth was reported at 0.6 per cent, a slowdown attributed to regulatory measures from the Reserve Bank of India (RBI). These measures include higher risk weights on unsecured loans, along with the impact of a higher base effect. Additionally, the introduction of new Liquidity Coverage Ratio (LCR) norms may further challenge credit growth in the coming months, according to CARE Ratings.
Year-over-year (YoY), credit grew by 13.4 per cent, a significant reduction from the 19.8 per cent growth recorded in the same period last year. Meanwhile, deposits grew by 11.2 per cent. Despite the recent surge, deposit growth has generally lagged behind credit expansion over the past year.
Bhalerao emphasized that deposits will remain crucial in FY25 as banks focus on strengthening their liability franchise. He further noted that banks are increasingly sourcing funds via certificates of deposit, though at higher costs, a trend gaining momentum in recent months.
RBI Governor Shaktikanta Das recently reassured that high Loan-to-Deposit Ratios (LDRs) are not a concern unless deposit growth continues to fall behind credit expansion. The sector's LDR stood at 77.2% per cent as of August 9, 2024, slightly below its peak of 78.8 per cent in 2013. The LDR measures liquidity risks, with higher ratios indicating potential pressures on a bank's liquidity.
