Indian banks’ non-food credit and deposit growth matched for the first time in nearly 30 months. Non-food credit growth in the two weeks ended October 18 was 11.5% year-on-year, while deposit growth was 11.7%, according to biweekly data released by the Reserve Bank of India. This is the first time since April 2022 that deposit growth has exceeded credit growth for the Indian banking industry.
As of October 18, non-food bank credit balances reached Rs 172 million and deposit balances exceeded Rs 218 million. Indeed, as of October 4, the deposit balance had decreased slightly compared to the previous two weeks.
Banks are trying to curb credit growth as a way to counter the slowdown in deposit growth in recent months. Financial institutions are also raising deposit rates to attract more individual depositors. This was particularly important as some private banks saw credit deposit ratios rising to nearly 100%, reducing the headroom available for further credit expansion.
The situation became more dire after bank credit growth started to pick up sharply after the merger of HDFC Bank and Housing Development Finance Corporation in July 2023. In the case of HDFC Bank in particular, the credit deposit ratio rose to 110% at the time of the merger.
“…alternative investment avenues are observed to be becoming more attractive to retail customers, and banks are facing funding challenges, with bank deposits not keeping pace with lending growth.” RBI Governor Shaktikanta Das pointed this out in his monetary policy announcement on August 26. 8.