The gap between credit and deposit growth in the banking system narrowed in September to 90 basis points from 330 basis points in June in an indication that the RBI’s November 2023 move to increase risk weights on unsecured consumer credit and bank credit to non-banking finance companies (NBFCs) is bearing fruit, with credit growth moderating in these segments.

The Central bank had upped the risk weights on unsecured consumer credit exposures of banks and NBFCs (including credit card receivables) as well as bank lending to NBFCs, other than housing finance companies (HFCs), by 25 basis points to pre-empt build up of any potential risk.

In September, bank credit growth (y-o-y) moderated to 12.6 per cent (from 15 per cent y-o-y growth in June 2024) even as deposits grew at 11.7 per cent yoy, remaining close to that in the previous quarter, per latest RBI data.

So, with credit growth (numerator) softening and deposit growth (denominator) holding steady, the wedge between the two is narrowing.

What this also means is that the rush among banks to mop funds through certificate of deposits (CDs) in order to support credit growth may come down.

As per the latest RBI bulletin, CD issuances grew 57 per cent y-o-y to ₹6.01 lakh crore during 2024-25 (up to November 1), significantly higher than ₹3.91 lakh crore in the year-ago period to meet funding needs.

Public sector banks (PSBs) and private sector banks (PVBs), which have 53.2 per cent and 41.8 per cent shares, respectively, in credit by non-Regional Rural Bank Scheduled Commercial Banks, recorded 13 per cent and 11.9 per cent increase yoy, respectively, in September, per RBI’s Quarterly Basic Statistical Returns (BSR) data.

Credit growth

In September, metropolitan branches of banks, which accounted for 60.6 per cent of loans, recorded lower growth of 11.6 per cent.

Agriculture, industry, housing and personal (non-housing) loans had 11.5 per cent, 23.7 per cent, 16.5 per cent and 14.9 per cent shares, respectively.

Credit to private corporate sector exceeded the headline credit growth and stood at 16.5 per cent y-o-y in September; working capital loans accelerated to 15.3 per cent from 14.1 per cent a year ago, according to the BSR.

Deposit growth

RBI’s BSR statement noted that a substantial amount of deposits have shifted to higher interest rate bucket during the latest monetary policy tightening cycle, with term deposits bearing over 7 per cent interest rate increasing to 68.8 per cent in September from 54.7 per cent a year ago and 33.7 per cent in March 2023.

Further, as term deposits offered more attractive return, they also outpaced the growth in CASA (current account and savings account) deposits, and their share in total deposits rose to 61.4 per cent in September from 59.8 per cent a year ago.

Deposits growth of PSBs inching up to 9 per cent y-o-y in September (8.1 per cent in June 2024), which, however, remained well below 15 per cent logged by other banks.

The share of senior citizens’ deposits increased to 20.1 per cent in September from 19.7 per cent a year ago.

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