Deposit growth equals credit in November 1 fortnight, shows RBI data

Credit growth has exceeded deposit growth since the fortnight ended March 25, 2022, leading to a widening gap that reached as much as 700 basis points

After edging past credit growth for the first time in 30 months in the fortnight ended October 18, deposit growth was almost on a par with credit growth in the November 1 fortnight, with credit growing by 11.9 per cent and deposit growing by 11.83 per cent year-on-year (Y-o-Y), according to the latest data released by the Reserve Bank of India (RBI).

 

The central bank data showed, credit in the system in the fortnight ended November 1 stood at Rs 174.39 trillion while deposit stood at Rs 220.43 trillion.

 

In the previous fortnight (October 18), deposit growth of 11.7 per cent outpaced credit growth of 11.5 per cent, signalling perhaps the start of a period where the liabilities side will keep pace with the asset side of the lenders.

 

Credit growth exceeded deposit growth since the fortnight ended March 25, 2022, leading to a widening gap that reached as much as 700 basis points (bps).

 

The alignment between credit and deposit growth now is primarily due to a slowdown in credit growth from its recent peaks, driven by several factors, including the RBI increasing risk weights on unsecured loans and loans to NBFCs (non-banking financial companies), as well as its directive for banks to reduce their elevated loan-to-deposit ratio (LDR).

 

Additionally, HDFC Bank, India’s largest private sector bank, has also moderated its credit growth in order to bring down its high LDR, contributing to the overall slowdown in credit growth. 

 

Having said that, experts feel credit growth will still outpace deposit growth going forward because generally in the fourth quarter there is a pickup in credit activity.

 

“Predicting trends on a fortnightly basis can be challenging, but it is clear that credit growth has slowed from its highs, primarily due to a deceleration in unsecured lending, lack of substantial pickup in overall credit to industry, and a slowdown in lending to NBFCs. As a result, we are seeing a closer alignment between credit and deposit growth numbers,” said Karan Gupta, director, India Ratings & Research.

 

“However, we anticipate that credit growth will accelerate in the last quarter of FY25, and we have guided for a 15 per cent growth in credit for the full financial year. In terms of deposits, we expect growth of around 11-12 per cent for FY25, with private sector banks likely to lead the way in deposit mobilization. State-owned banks, which have been relatively less aggressive in attracting deposits due to their lower LDR levels, may need to step up their efforts as their LDR levels are rising,” Gupta added.

 

Deposits have remained prominent in FY25 as banks have intensified efforts to strengthen their liability franchise following nudges from the RBI to close down the gap between credit and deposit growth.

 

“Credit growth has clearly moderated, largely due to the RBI’s directive on unsecured loans and loans to NBFCs. Last year, private sector banks had high LDR, which raised concerns for the regulator, leading to a slowdown in lending activity. In contrast, deposit growth remains steady, when compared to the support bank deposits received last year after withdrawal of Rs 2,000 note. We have also revised our deposit growth outlook upwards. However, we have maintained our credit growth outlook at 11.7-12.5 per cent for the year,” said Anil Gupta, vice president, financial sector ratings, ICRA.