Bank Credit Growth Slows As Deposits Outpace Loans, Says CareEdge Report

Bank credit growth is slowing while deposit growth is rising on an annual basis, according to a report released by CareEdge Ratings. This slowdown follows the Reserve Bank of India’s circular on risk weights and comments on the credit deposit ratio.

On a yearly basis, credit saw a growth of 13.4%, which is slower compared to last year's 19.8%. In contrast, deposits grew by 11.2%.

Credit offtake touched Rs 170.5 lakh crore as of Sept. 6, 2024, and it increased by 6.8% in comparison to December 2023, with personal loans and MSMEs contributing to the growth. However, on a sequential basis, it rose 0.6%, according to the report.

The deposits as of Sept. 6 rose at 7.3% compared to Dec. 2023 and touched Rs 215.5 lakh crore, driven by growth in time deposits. Sequentially, deposits increased by 1.1%, while in the past eight months they have increased by Rs 14.7 lakh crore.

The report also added that deposits are expected to remain a key focus in financial year 2025 as banks work to enhance their liability franchise. Additionally, the upcoming LCR norms may pose challenges to bank credit growth in the near future.

While deposit growth has improved, it has still fallen behind credit growth over the past year, according to the report.

The credit-deposit ratio stood at 79.1% for the July 26, 2024 fortnight. The CD ratio, the report added, has been hovering close to 80% since Sept. 2023. The report also added that banks are sourcing funds through certificates of deposit, which, despite being relatively more expensive, have gained significant traction.

The report also stated that the short-term weighted average call rate has remained the same at 6.54% in comparison to 6.7% as of Sept. 15, 2023.

According to the RBI, the certificate of deposit issuances increased by over 65% year-on-year up to Sept. 6, reaching Rs 4.51 lakh crore. This marks a substantial rise from Rs 2.72 lakh crore in the same period last year, as banks seek to meet their funding needs and address the gap between credit and deposit growth.