Bank deposit growth outpaces credit offtake for first time in 30 months

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Last Updated07/11/2024

For the first time in 30 months, deposit growth in the banking system has outpaced credit growth after it registered a year-on-year growth of 11.8 per cent in the fortnight ended October 18, compared to a rise of 11.7 per cent in loan growth.

For the first time in 30 months, the growth in bank deposits has surpassed credit growth, with a year-on-year deposit increase of 11.8% in the fortnight ending October 18, 2024, compared to 11.7% growth in loan disbursements.

Rising Deposit Rates: Scheduled Commercial Banks (SCBs) have increased term deposit rates, making deposits more attractive.
Credit Growth Moderation: The slowdown in credit growth is attributed to a higher base effect from the HDFC-HDFC Bank merger, and the Reserve Bank of India’s (RBI) regulatory measures such as increased risk weights for unsecured loans and new liquidity norms.

Bank Credit: Increased to ₹172.38 lakh crore, up from ₹154.57 lakh crore in the same period last year.
Bank Deposits: Grew to ₹218.07 lakh crore, compared to ₹195.15 lakh crore in the previous year.
A report by CareEdge Ratings indicated a moderation in credit offtake relative to deposit growth, with deposits rising 8.6% since January 2024.

Deposits: Expanded by ₹17.3 lakh crore over the last nine months, fueled by banks’ focus on enhancing their liability franchises and sourcing funds via certificates of deposit (CDs) despite higher costs.
Credit offtake: Increased by 8% in 2024, driven mainly by mortgages and MSMEs.

Risk Weights: In November 2023, the RBI raised risk weights on exposures to consumer credit and credit card receivables by 25-150%, affecting banks’ credit growth strategies.
Liquidity Coverage Ratio (LCR): The RBI’s draft guidelines from July 2024 propose updates to LCR, requiring banks to hold more High Quality Liquid Assets (HQLAs) to meet potential outflows. Banks are adjusting to these requirements ahead of the revised LCR implementation from April 1, 2025.

The Credit-Deposit (CD) Ratio has stayed around 80% since September 2023, slightly decreasing to 79% in October 2024. This trend, expected to continue with stricter liquidity norms, will improve banks’ liquidity buffers.