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The quarter-end rush by banks to raise deposits by banks paid off to an extent as it helped contain the credit deposit ratio by 0.7 percentage points in a single fortnight ended October 04. But deposit year-on-year (y-o-y) deposit growth continues to lag credit growth, latest Reserve Bank of India figures show.
This translated to a credit deposit ratio of 78.9 percent in the fortnight ended October 04, up from 79.6 percent as of September 20, official figures indicate.
The fortnight ending October 04, captures the quarter -end-September 30- deposit mobilisations during which banks tend to aggressively shore up numbers. Besides, the regulator has been nudging them to raise more deposits which prompted them to raise interest rate on deposits.
Deposits went up by 1.9 percent or Rs 4.14 lakh crore to Rs 219.2 lakh crore As of October 04, while credit offtake was up one percent Rs 1.72 lakh crore to Rs 173 lakh crore, the latest RBI figures indicate. But deposit growth y-o-y at 11.8 percent continues to lag credit growth which rose 12.8 percent y-o-y as of October 04.
Commercial bank’s deposit and borrowing rates are expected to expand due to a lagged effect compared to the repo rate, strong underlying credit demand, lower liquidity in the banking system, and the spread in credit and deposit growth widened
Deposit growth is anticipated to play a leading role in FY25 as banks take further efforts to shore up their liability franchise and ensure that lagging deposit growth does not constrain the credit offtake, according to Caredge Ratings. ” Further with rate cuts anticipated in the later part of FY25, some amounts might flow back into the banking system thereby improving the CASA ratios to a certain extent” the ratings firm said.
The share of Indian banks’ borrowings will continue to rise gradually within their overall funding mix if they struggle to attract sufficient fresh deposits to support loan growth, warned Fitch Ratings. The high loan-to-deposit ratio (LDR) could become a structural issue if low returns on deposits amid inflationary pressures – and evolving depositor preferences – hinder long-term deposit growth, it said.
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