Deposits outpace credit growth after months

Incremental deposit growth outstripped credit growth for the first time in the last few months in the fortnight ended November 4 as banks aggressively raised deposit rates to garner resources in the wake of robust credit growth.

Incremental deposits of all scheduled banks grew by ₹1,68,386.7 crore in the fortnight ended November 4, according to RBI data. During the same period, incremetal credit rose by ₹44,119.16 crore.

In the preceding fortnight ended October 21, incremetal credit was up by ₹26,610.67 crore while deposits de-grew by ₹64,098.13 crore.

As per RBI data, as on November 4, interest rate on term deposits of over one year duration was higher in the 5.50/7.25 per cent band against 5.50/6.50 per cent as on October 21, 2022.

That deposit growth is lagging credit growth is underscored by the fact that as on November 4, year-on-year (y-o-y) deposit growth and credit growth stood at about 8 per cent and 16.81 per cent, respectively.

It may be pertinent to mention here that Issues relating to lagging growth in deposits vis-à-vis credit growth and asset quality, among others, were discussed at RBI Governor Shaktikanta Das’ meeting with top bankers on Wednesday.

S&P Global Ratings, in its Global Bank Outlook report, said loan growth for banks in India is expected to stay somewhat in line with the trajectory of nominal GDP, and loan growth to the retail sector will continue to exceed that of the corporate sector.

Corporate borrowing up

“Corporate borrowing is also picking up momentum, but the uncertain environment may delay capital expenditure-related growth. A shift to bank funding from capital market funding is also driving a pickup in corporate loan growth.

“Deposits may find it hard to keep pace, leading to a weakening in the credit-to-deposit ratio. But the ratio has improved in the past few years. Banks’ funding profiles to remain sound, supported by strong deposit franchise,” said Deepali V Seth Chhabria, Primary Credit Analyst, S&P Global.