Lagging deposit growth
- November 24, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Lagging deposit growth
- SBI chairman has said that amid lagging deposit growth and constrained liquidity, government spending and the surplus of SLR (statutory liquidity ratio) with banks, will help support credit and economic growth.
- SBI chairman dismissed concerns of a slowdown in deposit growth dampening banks’ ability to lend, saying that the Indian GDP is growing at around 6-7 per cent which will also “pump money into the system”, in addition to the existing 8-9 per cent already being seen in deposits.
Statutory Liquidity Ratio
- Statutory Liquidity Ratio popularly called SLR is the minimum percentage of deposits that the commercial bank maintains through gold, cash and other securities. However, these deposits are maintained by the banks themselves and not with the RBI or Reserve Bank of India.
- Section 24 and Section 56 of the Banking Regulation Act 1949 mandates all scheduled commercial banks, local area banks, Primary (Urban) co-operative banks (UCBs), state co-operative banks and central co-operative banks in India to maintain the SLR.
Assets held under SLR are ones that can easily be converted into cash, gold and SLR securities:
- Dated securities
- Treasury Bills of the Government of India;
- Dated securities of the Government of India issued from time to time under the market borrowing programme and the Market Stabilization Scheme;
- State Development Loans (SDLs) of the State Governments issued from time to time under the market borrowing programme; and
- Any other instrument as may be notified by the Reserve Bank of India
- If CD (credit-deposit) ratio goes high, then there could be a challenge for banks. They would have to raise resources at high cost which is happening now. Some of the banks are willing to go to the extent of giving 7.5 per cent for deposits. This will curtail their ability to lend at competitive rates,” he said.
- Saying that an ideal credit-deposit ratio is usually around 75 per cent, Khara added that SBI is still at around 65 per cent. He said that the bank is currently growing sufficiently to fund its credit growth and so far hasn’t drawn from its excess SLR of around ₹3.85 lakh crore.
About Credit Deposit Ratio
- The CD ratio is the ratio of a bank’s total loans and total deposits.
- Low credit to deposit ratio is an indicator of excess liquidity because of higher deposits with the banking system and the lack of alternatives in credit markets.
- Under Reserve Bank of India rules, banks have to set aside 3% of deposits as cash reserve ratio (CRR) and another 18% in statutory liquidity ratio (SLR) compliant holdings. The rest, along with other resources, can be used for lending.