Net growth in deposits higher than advances by Rs 5.68 trn between 2020-24

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Net growth in deposits of banks between June 2020 and June 2024 was higher than net growth in advances by Rs 5.68 trillion, and in nine out of sixteen quarters during this period, the quarter-wise net absolute growth in domestic deposits was higher than net absolute growth in domestic advances, said Pankaj Chaudhary, Minister of State for Finance, in response to a question in Rajya Sabha.

 

The response by Chaudhary was to a question on whether growth in bank deposits has been lagging loan growth over successive quarters.

 

Deposit growth of Indian banks had been lagging behind credit growth since the fortnight ending March 25, 2022, leading to a widening gap that reached as much as 700 basis points (bps) at its peak. Due to this widening credit-deposit growth gap, deposits have remained a key focus in FY25 for banks, which have intensified efforts to strengthen their liability franchises following the Reserve Bank of India’s (RBI’s) encouragement to narrow the gap between credit and deposit growth.

 

In the fortnight ending October 18, after 30 months, deposit growth of 11.7 per cent outpaced credit growth of 11.5 per cent, possibly signalling the beginning of a period where the liabilities side will keep pace with the asset side of lenders.

 

Recent data shows that credit growth in the fortnight ending November 15 slowed to 11.15 per cent year-on-year (Y-o-Y), while deposit growth slightly outpaced credit growth, reaching 11.21 per cent Y-o-Y. The alignment between credit and deposit growth now is mainly due to a slowdown in credit growth from its recent peaks.

 

This slowdown is driven by several factors, including the RBI’s increase in risk weights on unsecured loans and loans to non-banking financial companies (NBFCs), stress in the unsecured retail segment of banks, and its directive for banks to reduce their elevated loan-to-deposit ratio.