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New Delhi: Deposits in the Indian banking system increased at a faster pace than loans during the fortnight ended October 18 for the first time in 30 months largely due to slowdown in credit to services sector, data compiled by CareEdge Ratings showed on Tuesday.
On a year-on-year basis during the fortnight ended October 18, deposits witnessed a growth of 11.8% while credit increased by 11.7%. The deposits growth has outpaced credit growth for the first time since February 2022.
The growth in credit as well as deposits in the Indian banking system has moderated. However, the decline is sharper in credit growth. Credit growth declined by 8 percentage points when compared with the last year while deposit growth eased by 1.6 percentage points during the same period.
Credit growth has moderated relative to deposit growth especially after the Reserve Bank of India’s circular on risk weights and comments on reducing the certificates of deposits (CD) ratio. “This also indicates that the credit offtake could face challenges and be tepid for the year,” CareEdge Ratings said.
There was a wide gap between credit and deposit growth for the past over two years. The RBI had voiced concern over it multiple times and recently nudged banks to adopt innovative measures to mobilise deposits.
Meanwhile, in absolute terms, deposits increased by Rs 17.3 lakh crore over the last 9 months. It stood at Rs 218.1 lakh crore as of October 18, 2024, which is 8.6% higher when compared with Rs 200.8 lakh crore recorded in December 2023.
“Deposits have remained prominent in FY25 as banks have intensified efforts to strengthen their liability franchise. The banks are also sourcing funds via the certificates of deposits at a relatively higher cost,” the rating agency said.
In absolute terms, over the last 9 months, credit offtake expanded by Rs 12.7 lakh crore, reaching Rs 172.4 lakh crore as of October 18, 2024. Credit offtake increased by 8% compared to December 2023, while declining sequentially by 0.3% for the fortnight ended October 18, 2024.
Mortgages, along with demand from MSMEs and commercial real estate, have driven this credit growth. However, the slowdown compared to last year can be attributed to a higher base effect, banks' reluctance to lend due to weak deposit growth, lack of confidence in some asset classes such as unsecured lending and RBI measures such as higher risk weights and the proposed LCR norms, CareEdge Ratings said in a research note.