Bank credit and deposit growth lost steam in the last fortnight of FY23 vis-a-vis year ago period even as overall growth under these two key parameters was robust in the reporting financial year as compared with FY22.
In the reporting fortnight ended March 24th, bank credit and deposits increased by ₹1,26,294 crore (₹1,85,303 crore in the year ago period) and ₹90,914 crore (₹2,00,171 crore), respectively, per RBI data on scheduled commercial banks statement of position in India.
Overall, in FY23, credit and deposit growth were strong at ₹18,19,303 crore (₹9,62,034 crore) and ₹15,77,441 crore (₹13,59,482 crore), respectively.
In FY23, credit growth outstripped deposit amid liquidity pressure, with banks being forced to up deposit and lending rates in sync with the monetary policy committee upping the policy repo rate cumulatively by 250 basis points (bps) from 4 per cent to 6.50 per cent since May 2022.
In FY22, deposit growth outpaced credit growth amid loose monetary policy and ample liquidity.
Revision in deposit and lending rates
Banks have revised their repo linked external benchmark-based lending rates (EBLRs) upwards by 250 bps in tandem with the increases in the policy repo rate since May 2022, per RBI’s latest monthly bulletin.
Scheduled Commercial Banks (SCBs) have also increased their 1-year median marginal cost of funds-based lending rate (MCLR) by 135 bps during the period May 2022 to February 2023, it added.
As a result of the increase in benchmark rates for pricing of loans, weighted average lending rates (WALRs) on fresh rupee loans of SCBs increased by 149 bps during May 2022 to January 2023.
The increase in the share of EBLR linked loans, which accounts for a major share of outstanding floating rate rupee loans (47.6 per cent as at end-September 2022), has improved the pace of transmission to WALR on outstanding loans – the pass-through to WALR on outstanding rupee loans stood at 86 bps during May 2022 to January 2023, the bulletin said.
Across bank groups, transmission to WALRs on fresh rupee loans of public sector banks (PSBs) has exceeded that of private sector banks (PVBs) in the current tightening period -- May 2022 to January 2023.
‘The WALR on fresh rupee loans of PSBs increased by 159 bps while that of PVBs increased by 119 bps. Lending rates of PSBs, however, remain lower than those of PVBs. The pass-through to WALR on outstanding loans was relatively better for PVBs than for PSBs,’ per the bulletin.
Banks have also repriced their deposit rates higher in recent months to mobilise funds. The intensifying competition among banks to expand their deposit base may impel banks to increase deposit rates going ahead, according to the bulletin.
The median term deposit rates (that is average card rates on retail deposits) on fresh deposits increased by 82 bps during May 2022 to February 2023.