Banks struggling to mobilise large deposits; C-D ratio rises to 80%: Report

Banks struggled to mobilise large deposits to meet the increasing credit demand in the last two financial years, a report said.

Outstanding credit disbursed by Scheduled Commercial Banks (SCBs) was at the highest level in 2023-24 amounting to Rs 1,64,98,006 crore, whereas in percentage terms, the growth of Credit-to-Deposit(C-D) ratio rose from 75.8 per cent to 80.3 per cent, Infomerics Ratings said in a report.

According to the RBI April 2024 Bulletin, during March 2024, the incremental Credit-Deposit Ratio(ICDR) remained around 95.94 per cent, whereas on March 8, 2024 this was at 92.95 per cent.

It may be observed that there was a much higher growth of credit of the SCBs compared to the growth of deposits, even as per the Quarter-on-Quarter (QoQ) basis, it said.

The growth of credit outpaced the growth of deposits during the period FY'19 to FY'24.

Alternative investments and substantial cash holdings in the unorganized sector slowed deposit accumulation, particularly in rural areas, it said.

It is interesting to note that the proportion of individual investors under 30 years old rose steadily, with their share in the registered investor base growing from 22.6 per cent as of FY19 to 39.9 per cent as of FY25 (as on July 31, 2024).

This trend demonstrates an increasing interest in equity markets among young investors, it said.

During the same period, it said, the share of investors aged 30-39 remained relatively stable, while the share of those over 40 declined.

In order to increase the deposit ratio, banks and Government must make joint efforts, True North Financial Services CEO Rochak Bakshi said.

Banks need to return to the old trend of raising small ticket deposits from the retail public which has historically been the strength of the country rather than pursuing bulk corporate deposits, he said.

Moreover, Bakshi said, a noticeable trend is that 47 per cent of term deposits are held by senior citizens which implies that the younger generation is not attracted towards bank deposits.

"Government should consider reducing the tax on interest especially at the highest tax slab. Also, it may consider taxation at the time of maturity of fixed deposit rather than the present system of taxation at yearly accrual," he added.