Home / Industry / Banking /  Banks jittery as credit growth beats deposits

MUMBAI : Bankers are worried about the widening gap between credit and deposit growth, as it is expected to extend further over the next three months, despite festive offers on deposit rates to lure customers.

While retail deposits and bulk deposits grew by 2.5% and 15%, respectively, since May, when the Reserve Bank of India (RBI) first raised policy rates, credit growth was at 15% from the year-ago as of July-end, bankers said.

While policy rates went up by 140 basis points during the period, bulk deposit and retail deposit rates have gone up by 120-200 basis points and 40-80 bps, respectively. Bankers said depositors continue to get a negative interest rate despite rising interest rates. According to RBI data, the one-year deposit rate is at 5.3-6.1%, far lower than the inflation rate of 6.5-7%.

“With consumption going up, people are not saving, and that’s due to inflation. Even though interest rates have started increasing, it’s still very low. Depositors are still getting lower rates. Some interest is seen in the secondary market. Even if you look at mutual funds, there is no clear indication that people are putting money there. The overall quantum of savings is lower. People might be taking more risks by putting money in the stock market. Household savings are also not up. People continue to spend because of inflation, and banks are facing a problem," Madan Sabnavis, chief economist, Bank of Baroda, said.

However, August payment data showed a strong revival in consumption, with Unified Payments Interface (UPI)-processed transactions growing by 68% from a year ago to more than 10.73 trillion.

The inflows into mutual funds have also been steady, according to AMFI data. The mutual fund industry received 58,815 crore in net inflows, as against gross systematic investment plan (SIP) inflows of 48,500 in the first four months of FY23. SIP assets under management (AUMs) crossed the 6 trillion milestone for the first time, and there has been a continued SIP contribution of over 12,000 crore per month.

Besides, customers are directly investing in stocks, according to the latest demat account opening data, topping the 100 million mark for the first time in August.

Over 2.2 million new demat accounts were opened last month, taking the cumulative figure to 100.5 million, according to data released by depository firms National Securities Depository Ltd and Central Depository Services.

“Earlier, the government used to deposit a lot of money with banks. Since it started the single and central nodal agency system, it has been releasing money only when there is a requirement. So, the earlier flow in the deposit has tapered off a bit. Banks are also wooing NRI customers with higher rates, but that is not helping either," said a senior banker of a public sector bank.

Bankers said NRI deposit growth was muted at 10-12%, against expectations of 25-30%, despite offering higher rates on NRI deposits and the RBI removing the interest cap on foreign currency deposits from non-residents and waiving off the need to maintain Cash Reserve Ratio and Statutory Liquidity Ratio on incremental NRI deposits.


Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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