Credit grows at 10.6% and deposits at 10.7% in November 29 fortnight

Credit growth in the fortnight ending November 29 slowed to 10.64 per cent year-on-year (Y-o-Y), growing almost in tandem with deposits, which posted a growth of 10.72 per cent Y-o-Y during the same period, according to the latest data from the Reserve Bank of India (RBI).

 

Data shows outstanding deposits in the fortnight ending November 29 stood at Rs 220.17 trillion, while outstanding credit stood at Rs 175.09 trillion. In the previous fortnight (November 15), outstanding deposits stood at Rs 218.55 trillion, while outstanding credit was at Rs 173.62 trillion. Both credit disbursement and deposit mobilisation saw a decline in the reporting fortnight.

 

 

Credit growth had far exceeded deposit growth until a few months ago. It was in the fortnight ending October 18 that, after 30 months, deposit growth outpaced credit growth as credit growth had come off its peaks from last year. Overall credit growth has also slowed from 16 per cent last year to less than 11 per cent now.

 

The slowdown in credit growth is driven by several factors, including the RBI's increase in risk weights on unsecured loans and loans to non-banking financial companies, stress in the unsecured retail segment, and its directive for banks to reduce their high loan-to-deposit ratios.

 

“Earlier, only unsecured loans were slowing; now the slowdown is spreading even to secured segments. Mortgage growth is down from 18 per cent to 12 per cent, auto loans—which include all kinds of vehicle loans—are down from 20 per cent last year to 11 per cent, and unsecured loan growth, which was running over 25 per cent last year, is now down to 11 per cent,” said Suresh Ganapathy, Managing Director, Head of Financial Services Research at Macquarie Capital.

 

“We believe credit growth drives GDP and not the other way round,” he said. India’s gross domestic product (GDP) growth slowed to a seven-quarter low of 5.4 per cent in the July–September quarter.

 

In the recently concluded monetary policy meeting, the RBI cut the Cash Reserve Ratio (CRR) for banks by 50 basis points (bps) to 4 per cent from 4.5 per cent of net demand and time liabilities (NDTL) in two equal tranches of 25 bps each, with effect from the fortnight beginning December 14 and December 28. The cut will restore the CRR to 4 per cent of NDTL, which prevailed before the commencement of the policy tightening cycle in April 2022. The CRR cut is likely to infuse liquidity of Rs 1.16 trillion into the banking system, which, in turn, is expected to reduce costs for banks and provide a much-needed boost to credit off-take, which has slowed in recent months.