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Banks’ incremental credit-deposit ratio falls to 26% in FY17, from 89% a year ago

The excess liquidity has been invested, with the result that investments by banks grew by 22.17% in FY17, compared to 5.36% in FY16


Banks are sitting on huge amounts of deposits, with no avenues for lending. Photo: Hemant Mishra/Mint
Banks are sitting on huge amounts of deposits, with no avenues for lending. Photo: Hemant Mishra/Mint

Banks are sitting on huge amounts of deposits, with no avenues for lending. The upshot: a sea of liquidity. The excess liquidity has been invested, with the result that investments by banks grew by 22.17% in fiscal year 2017 (FY17), compared to 5.36% in FY16. This has driven down yields.

The chart shows the incremental credit-deposit ratio for banks over the past 10 years. Note the sharp drop in the ratio in FY17 to 26.01%, compared to 89.8% in FY16. The fall is due to demonetisation, which boosted deposit growth while reducing credit growth. This is the underlying reason for the sea of liquidity in the money markets.

Naveen Kumar Saini/Mint
Naveen Kumar Saini/Mint

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