Trend shift? Bank deposits rise four times versus credit outflows

Against the ongoing trend, scheduled commercial banks mobilised about four times more in deposits than the credit disbursed in the fortnight ended November 4. While the hard push at branches and aggressive deposit rate hikes are bearing fruit, such a wide gap appears to be an outlier and needs further scrutiny, said bankers.

Sequentially, credit rose by Rs 0.43 trillion to Rs 129.26 trillion and deposits grew by Rs 1.7 trillion to Rs 173.7 trillion in the reporting fortnight, Reserve Bank of India (RBI) data showed.

A senior State Bank of India (SBI) executive said there is a lot of aggression at the branch level and on digital platforms for raising funds. Also, banks have been increasing interest rates across maturities, especially for bulk deposits. This is beginning to show results. But such a wide difference needs deeper examination, the executive said.

Echoing the need for clarity, a treasury executive with a private bank said there is also an element of money moving from liquid fund schemes, run by asset management companies, to bank term deposits. 

Meanwhile, the RBI in its state of economy report (November 2022 bulletin) said the median term deposit rates (average card rates on retail deposits) on fresh deposits increased by 48 basis points during May-October 2022. Banks have increased their bulk deposit rates higher than retail deposit rates.

Across bank groups, transmission to lending and deposit rates of private sector banks has exceeded that of public sector banks in the current tightening period, the RBI said.

Subha Sri Narayanan, director, CRISIL Ratings, said in this high credit growth environment, whether deposit growth can keep pace is “something which we have to monitor”. 

Surplus liquidity in the banking system is normalising. “Therefore, banks may now have to raise deposit rates at a faster pace, which we are already seeing. In fact, with competition for deposits also set to intensify, some banks may have to resort to higher-cost wholesale deposits,” CRISIL said in a note.