Bank Credit And Deposit Growth Align After 30 Months

Indian bank's non-food credit and deposit growth have aligned after nearly 30 months. According to fortnightly data released by the Reserve Bank of India, non-food credit growth stood at 11.5% year-on-year in the fortnight ended Oct. 18, compared to 11.7% deposit growth. This is the first time since April 2022 that the deposit growth rate has risen above credit growth for the Indian banking industry.

Outstanding non-food bank credit as of Oct. 18 stood at Rs 172 lakh crore, while outstanding deposits crossed Rs 218 lakh crore. To be sure, outstanding deposits were marginally lower compared with the preceding fortnight as of Oct. 4.

Banks have been trying to rein in credit growth as a way to counter the slower growth in deposits over the last few months. Lenders have also been raising deposit rates in a bid to attract more retail depositors. This was especially important as some private banks saw their credit-deposit ratio rising to nearly 100%, reducing the headroom available for further credit growth.

The situation became more pressing after bank credit growth started rising sharply after the merger between HDFC Bank and Housing Development Finance Corp. in July 2023. Specifically for HDFC Bank, the credit deposit ratio rose to 110% at the time of the merger.

"...it is observed that alternative investment avenues are becoming more attractive to retail customers, and banks are facing challenges on the funding front with bank deposits trailing loan growth," RBI Governor Shaktikanta Das had noted in his monetary policy announcement on Aug. 8.