The banking system could face liquidity challenges because credit growth is outpacing deposit growth, cautioned a FICCI-IBA Survey of Banks.

Raising deposits to keep pace with the loan growth and keeping the credit cost low remains on the top of banks’ agenda, as per the Survey. It was carried out among 22 banks, including the public sector, private sector and foreign banks, representing about 67 per cent of the banking industry as classified by asset size.

The Survey highlighted that customers’ search for higher-yielding investments and the ability to lock those interest rates for a longer period has led to a shift from low-cost to high-cost deposits, thereby driving up deposit costs for lenders.

“More than two-thirds of respondent banks (67 per cent) reported a decrease in the share of CASA (current account, savings account) deposits in total deposits in this round of survey. Term deposits have gained momentum as reported by the respondent banks due to higher/attractive rates.

“Eighty per cent of the participating public sector banks reported a decrease in the share of CASA deposits during the first half of 2024, while more than half the private sector bank respondents reported a decrease in CASA deposits,” according to the survey.

The survey findings show that long-term credit demand has seen continued growth for sectors such as Infrastructure, Metals, Iron and Steel, and Engineering.

Infrastructure is witnessing an increase in credit flow with 77 per cent of the respondents indicating an increase in long-term loans. This could be attributable to the government’s capital expenditure push for the infrastructure sector.

The survey suggests that the outlook on expectation for growth of non-food industry credit over the next six months is optimistic with 62 per cent of the participating banks expecting non-food industry credit growth to be above 12 per cent.

Non-performing assets

Respondent banks continued to remain sanguine about the asset quality prospects in the current round of the survey, cushioned by policy and regulatory support.

Over half of the respondent banks in the current round believing that Gross NPAs (non-performing assets) would be in the range of 2.5 per cent - 3per cent over the next six months. Nineteen per cent respondents are of the view that NPA levels would be in the range of 2per cent- 2.5per cent

An overwhelming majority (70%) of public sector respondents expect gross NPAs to be in the range of 2.5 per cent-3 per cent. Forty-four per cent of private bank respondents expect NPAs to be in the range of 2per cent-2.5 per cent while all foreign bank respondents expect NPAs to be in the range of 2.5 per cent - 3per cent.

As per respondents, some of the sectors that may continue to show NPAs over the next six months include Agriculture, Textiles and garments, MSMEs, and Gems & Jewellery.

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