Synopsis: Credit offtake in India has seen moderate growth, rising by 5.3% to Rs. 168.1 lakh crore as of July 26, 2024, while deposit growth has slightly outpaced it at 5.5%. The convergence of credit and deposit growth highlights ongoing challenges in the banking system, particularly in shoring up deposits to meet rising credit demand.
India's banking sector is facing a convergence of credit and deposit growth, reflecting system-wide challenges in managing deposits to support rising credit demand.
As of July 26, 2024, credit offtake increased by 5.3% compared to December 2023, reaching Rs. 168.1 lakh crore.
This growth was primarily driven by the personal loans and MSME sectors.
However, on a sequential basis, credit growth remained flat, indicating a slowdown in momentum.
This deceleration in credit growth can be attributed to several factors, including the Reserve Bank of India's (RBI) measures such as higher risk weights on unsecured loans and the high base effect, according to a CareEdge report.
These measures have likely contributed to the moderation in credit expansion, which is now closely aligning with deposit growth.
Deposits, on the other hand, grew by 5.5% compared to December 2023, reaching Rs. 211.9 lakh crore as of July 26, 2024.
The growth in deposits was primarily driven by an increase in time deposits.
However, the sequential growth in deposits was marginal, at just 0.1%, indicating a slow pace of deposit accumulation.
In absolute terms, deposits expanded by Rs. 11.1 lakh crore over the last eight months, underscoring the importance of deposit growth in maintaining the banking sector's stability.
Banks are increasingly focusing on strengthening their liability franchise to prevent constraints on credit uptake due to lagging deposit growth.
This includes sourcing funds through certificates of deposits (CDs) at relatively higher costs, which have shown significant traction.
The Credit-Deposit (CD) ratio, a key indicator of the banking sector's health, has hovered around 80% since September 2023.
However, for the fortnight ending July 26, 2024, the CD ratio saw a slight decrease of 5 basis points, standing at 79.3%.
Excluding the impact of mergers, the CD ratio for the current fortnight was 77.3%, compared to 77.6% on July 28, 2023.
The credit to total assets ratio remained flat at 68.6% for the fortnight ending July 26, 2024, while the Government Investment to Total Assets Ratio experienced a minor downtick of 1 basis point, standing at 25.7%.
Overall government investments reached Rs. 63.1 lakh crore as of July 26, 2024, reflecting an 8.1% year-on-year growth, though sequentially, it remained flat.
On a year-on-year basis, credit saw a growth of 13.6%, which is slower compared to the previous year's growth of 19.7%.
Meanwhile, deposits grew by 10.6% year-on-year, showing some improvement but continuing to lag behind credit growth.
In conclusion, the Indian banking sector is currently navigating a challenging environment where credit growth is moderating and converging with deposit growth.
While deposits have shown some improvement, they continue to lag behind the demand for credit, underscoring the need for banks to enhance their liability management strategies.
As banks focus on shoring up deposits, the sector's ability to support credit growth will be a key factor in sustaining economic momentum.
Disclaimer: This article is based on the latest available data and reflects the financial trends as of the date of publication. Economic conditions and financial policies are subject to change, and readers are encouraged to consult with financial experts and reliable sources for the most current information.
