Withdrawal of Rs 2,000 notes pushes deposit to six-year high in June

In absolute terms, deposits rose by Rs 22 trn in the trailing 12-month period when it had stood at Rs 185.7 trn

Withdrawal of Rs 2,000 notes by Reserve Bank on May 19 and the subsequent near total return of the currency to the system has buoyed deposit accretion to a six-year high of Rs 191.6 lakh crore in June, according to a report.

Earlier this month, the RBI said more than three-fourths of the total 3.62 lakh crore of Rs 2,000 bank notes have come back to the system by way of deposits (over 85 per cent) and the rest as note exchanges.

According to Sanjay Agarwal, a senior director with Care Ratings, deposits witnessed a healthy on-year growth of 13 per cent to Rs 191.6 lakh crore, which is the highest in the past six years (since March 2017) in the fortnight ending June 30, partly supported by the withdrawal of the Rs 2,000 currency notes and higher interest rates on deposits.

Deposits rose 13 per cent in the reporting fortnight and sequentially, it expanded by 3.2 per cent to Rs 191.6 lakh crore and in absolute terms, deposits rose by Rs 22 lakh crore in the trailing 12-month period when it had stood at Rs 185.7 lakh crore.

As a result, the spread between credit and deposits growth dropped to 326 basis points in the reporting fortnight as against 875 bps in November 2022, which was the largest. This can be attributed to a rise in deposits in the last two to three fortnights.

This has had the short-term weighted average call rate (WACR) rising to 5.94 per cent as of June 30 from 4.3 per cent as of July 31, 2022, primarily due to the elevated policy rates. The WACR had peaked at 6.69 per cent as of May 4, 2023.

Meanwhile, credit offtake continued to remain elevated at 16.2 per cent on-year to reach Rs 143.9 lakh crore for the reporting fortnight ending June 30 driven by personal loans, NBFCs and agriculture & allied activities. In the same period last year, credit pickup was 14.5 per cent.

The outlook for credit demand continues to be positive due to rise in capital expenditure on the back of the production linked incentive scheme, and retail credit push. However, it is still expected to moderate from 15 per cent in FY23 to 13-13.5 per cent in FY24.

The credit/deposit ratio has been generally trending upward since the later part of FY22 and generally hovering above 75 per cent since December 2022. For the reporting fortnight, it stood at 75.1 per cent expanding by 210 bps on-year from July 1, 2022, due to faster growth in credit compared to deposits.

However, on a sequential basis, it dropped by 40 bps from June 16, 2023. On the other hand, the incremental C/D ratio declined to 63.7 per cent as of June 30, 2023, compared to 99.2 per cent as of July 1, 2022.

The share of bank credit to total assets rose by 54 bps to 67.3 per cent in the fortnight to June 30, 2023 due to higher credit growth. It also expanded by 20 bps from the immediate fortnight. Investment to total assets fell by 21 bps to 26.7 per cent in the fortnight due to slower growth in investments. Meanwhile, it also declined by 46 bps from the immediate fortnight.