Banks’ Deposit Growth Dips to 10.6%; Credit Growth at 13.9% as of June 28

Banks’ Deposit Growth Dips to 10.6%; Credit Growth at 13.9% as of June 28

Sub: Eco

Sec: Monetary Policy

Overview:

• Deposit growth of commercial banks has slowed to 10.64% for the fortnight ending June 28.
• Credit growth also saw a decline during this period.

Key Statistics:

• Credit Growth:
  • 13.88% year-on-year (Y-o-Y) increase, reaching Rs 163.8 trillion as of June 28.
• Deposit Growth:
  • 10.64% Y-o-Y increase, totaling Rs 211.95 trillion.

Exclusion of HDFC Merger Impact:

• The figures do not account for the impact of the HDFC-HDFC Bank merger which took effect on July 1, 2023.

Comparative Data:

• For the previous fortnight ending June 14:
  • Deposit growth: 12.1%
  • Credit growth: 15.6%

RBI Concerns:

• RBI Governor has highlighted the persistent gap between credit and deposit growth in a meeting with bank chief executives.
• Banks are encouraged to enhance their liability franchise to prevent deposit growth from constraining credit offtake.

Credit to Deposit (C/D) Ratio:

• CareEdge Ratings noted that the C/D ratio has hovered around 80% since September 2023.
• For the fortnight ending June 14, 2024:
  • C/D ratio: 79.9%
  • Excluding HDFC merger impact: 77.9% compared to 75.5% on June 16, 2023.

Implications:

• The slowdown in deposit growth coupled with relatively high credit growth indicates potential pressures on banks’ ability to meet credit demand.
• Efforts by banks to shore up deposit growth will be crucial in ensuring sustained credit offtake and maintaining financial stability.

Credit-Deposit Ratio Simplifier

The Credit-Deposit (CD) ratio is a key banking metric that measures the proportion of a bank’s total deposits given out as loans. It reflects how efficiently a bank uses its deposits to generate income.

• Regulatory Guidelines:
  • The Reserve Bank of India (RBI) does not prescribe any specific CD ratio.
• Ideal Range:
  • An optimal CD ratio generally falls between 80-90%.
• Above 90%: May indicate aggressive lending practices.
• Below 80%: Suggests underutilization of deposit base.
• Implications:
  • High CD Ratio: Indicates significant lending, which can lead to liquidity issues if not managed properly.
  • Low CD Ratio: Suggests insufficient lending, potentially reducing profitability.
• Factors Influencing the CD Ratio:
  • Credit Growth: Rising demand for loans increases the CD ratio.
  • Deposit Growth: Higher deposits can lower the CD ratio if lending does not grow proportionately.
  • Economic Conditions: Booms or recessions affect loan demand and deposit growth.