KOLKATA: The gap between credit and deposit growth in the banking system narrowed by more than half a percentage point towards the end of September, driven by regulations to boost deposits and reduce risks in the broader financial system as demand for loans increases. is reflected. It remains unabated.
The gap narrowed to 162 basis points (bp) in the two weeks to September 20, from 220 basis points (bp) two weeks earlier, according to the latest data from the Reserve Bank of India (RBI). One basis point is one-hundredth of a percentage point.
As of September 20, year-over-year credit growth was 13.02% compared to 13.3% two weeks ago, while deposit growth has been even higher recently at 11.4% compared to 11.1%.
The central bank’s September Economic Situation Report also showed that the credit deposit gap, which had widened for a long time, is starting to narrow.
Yes, banks have struggled to mobilize large deposits, but on the other hand, credit demand has grown much faster in the past two financial years.
“In 2023-2024, outstanding loans by scheduled commercial banks touched the highest level at Rs 1.65 billion, while in percentage terms, the growth in credit-to-deposit (CD) ratio increased from 75.8% to 80.3%. %,” Infomerics said. The ratings were announced last week. Bank executives have frequently said in recent months that savings in term deposits are fleeing as savers seek higher returns. This trend has led to higher deposit costs and, as a result, lower net interest margins. Meanwhile, bank deposit mobilization increased slightly by 11.5% year-on-year as of September 20, compared to an 11.3% increase two weeks ago. . Mobilization of fixed deposits accelerated at 13.3%, compared to 11.3% growth in low-cost savings and current accounts, according to preliminary data.
In absolute terms, commercial banks’ total fixed deposits stood at Rs 215 million as on September 20, 2023, compared to Rs 193 million as on September 23, 2023.
Meanwhile, credit balance stood at Rs 171 million against Rs 170 million.
According to RBI’s State of the Economy report, more than two-thirds of fixed deposits earn returns of more than 7% annually.
Divisional level term deposits stood at Rs 25 million against Rs 22 million and demand deposits stood at Rs 190 million against Rs 171 million.
“As deposit mobilization remains a challenge, banks continue to rely heavily on certificates of deposit to meet their funding needs to ensure that slow deposit growth does not constrain credit,” the report added. Ta.
