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According to data compiled by CARE Ratings, the Indian banking system has seen a significant shift in deposit growth, which has outpaced credit expansion over the past eight months. This trend represents a notable development as banks continue to strengthen their liability franchises amid changing regulations and changing economic conditions. The report said deposits increased by Rs 14.7 million to reach Rs 215.5 million as of September 2024, while credit increased by Rs 10.9 million to reach a total of Rs 170.5 million during the same period. emphasized.
Demand for personal loans and borrowings in the micro, small and medium enterprises (MSME) and commercial real estate sectors have been the main drivers of credit growth in recent months. However, experts observe a downward trend in credit expansion compared to the previous year.
Saurabh Bhalerao, Associate Director, BFSI Research, CARE Ratings, explained that credit growth has slowed and is now converging with deposit growth. On a quarter-on-quarter basis, credit growth was reported at 0.6%, which can be attributed to the slowdown due to regulatory measures by the Reserve Bank of India (RBI). These measures include higher risk weights for unsecured loans, along with the impact of higher base effects. Additionally, the introduction of new liquidity coverage ratio (LCR) standards could make credit growth even more difficult in the coming months, according to CARE Ratings.
Year-over-year (year-on-year), credit increased by 13.4%, but was significantly lower than the 19.8% increase in the same period last year. On the other hand, deposits increased by 11.2%. Despite the recent surge, deposit growth has generally lagged credit expansion over the past year.
Mr. Varelao emphasized that deposits remain important in FY2025 as the bank focuses on strengthening its liability franchise. He also noted that banks are increasingly raising money through certificates of deposit, albeit at a higher cost, a trend that has gained 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 underperform credit expansion. The sector’s LDR was 77.2% as of August 9, 2024, slightly lower than its 2013 peak of 78.8%. LDR measures liquidity risk, with a higher ratio indicating potential pressure on a bank’s liquidity.
