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Synopsis

• Credit growth is trending down and on an annual basis, deposit growth has outpaced credit offtake for the first time in the last 30 months. Additionally, when comparing growth rates with December 2023, deposit growth has continued to outpace credit offtake.

* Credit offtake increased by 8.0% compared to December 2023, reaching Rs 172.4 lakh crores as of October 18, 2024. Mortgages and MSMEs account for the bulk of this increase. However, the growth slowdown compared to last year can be attributed to a higher base effect due to the merger and RBI measures such as higher risk weights and the proposed LCR norms.

* Deposits rose at 8.6% compared to December 2023, reaching Rs 218.1 lakh crore as of October 18, 2024. This growth can be attributed to rising term deposit rates of Scheduled Commercial Banks (SCBs).

• The Short-term Weighted Average Call Rate (WACR) has decreased to 6.43% as of October 18, 2024, compared to 6.74% as of October 27, 2023, indicative of surplus liquidity.

Bank Credit Growth Rate Trends Downwards for the Fortnight Figure 1: Bank Credit Growth Trend (y-o-y %, Rs. Lakh crore)

• Credit offtake increased by 8.0% compared to December 2023, while declining sequentially by 0.3% for the fortnight ended October 18, 2024. In absolute terms, Over the last 9 months, credit offtake expanded by Rs 12.7 lakh crore, reaching Rs 172.4 lakh crore as of October 18, 2024. Mortgages, along with demand from MSMEs and commercial real estate, have driven this credit growth. However, the slowdown compared to last year can be attributed to a higher base effect, banks reluctance to lend due to weak deposit growth, lack of confidence in some asset classes such as unsecured lending and RBI measures such as higher risk weights and the proposed LCR norms

Figure 2: Bank Deposit Growth Outpaces Credit Offtake (y-o-y %)

• Deposits rose to 8.6% compared to December 2023, reaching Rs 218.1 lakh crore as of October 18, 2024, and sequentially witnessed a downtick of 0.5%. Meanwhile, in absolute terms, deposits have expanded by Rs 17.3 lakh crore over the last 9 months. Deposits have remained prominent in FY25 as banks have intensified efforts to strengthen their liability franchise. The banks are also sourcing funds via the certificates of deposits at a relatively higher cost.

Figure 3: Credit-Deposit (CD) Ratio Hovers Just Below 80% – Includes Merger Impact

• The CD ratio has been hovering around 80% since September 2023. The CD ratio witnessed a marginal uptick reaching 79.0% for the fortnight ending October 18, 2024, compared to 79.5% in December 2023.

Figure 4: Trend in Bank Credit and Deposit Movement

As per the above table, we can observe that in absolute terms, credit growth has moderated relative to deposit growth especially after RBI’s circular on risk weights and comments on reducing the CD Ratio. This also indicates that the credit offtake could face challenges and be tepid for the year.

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