Why is Bank Credit Growth Surpassing Deposit Growth?
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Synopsis
Explore the dynamics of India's banking sector as credit growth outstrips deposit growth in mid-October 2023. Driven by festive demand and GST cuts, this trend signals changing financial behavior and economic conditions.
Key Takeaways
- Bank credit growth is at 11.5% YoY, matching last year’s rate.
- Aggregate deposits reached Rs 238.8 lakh crore with a 9.5% YoY increase.
- The credit-to-deposit ratio is now 80.4%, surpassing the 80% mark.
- Festive season demand and GST cuts are key drivers of this trend.
- The WACR rose to 5.53%, indicating tighter liquidity.
New Delhi, Nov 4 (NationPress) Bank credit growth has outpaced deposit growth as of mid-October, fueled by seasonal festive demand, GST rate reductions, and vigorous activity in the retail and MSME sectors, according to a report released on Tuesday.
Total credit off-take reached Rs 192.1 lakh crore (as of October 17), representing an impressive 11.5 percent year-on-year increase, aligning with last year's growth rate, as noted by the report from Care Edge Ratings.
Moreover, significant vehicle financing during the festive period is anticipated to further enhance overall credit growth, driven by corporate interest due to rising bond yields, the ratings agency highlighted.
Total aggregate deposits amounted to Rs 238.8 lakh crore, reflecting a 9.5 percent year-on-year increase but a sequential decline of 1 percent compared to the previous fortnight, as stated in the report.
The credit-to-deposit (CD) ratio has risen to 80.4 percent in the current fortnight, exceeding the 80 percent threshold, according to Care Edge Ratings.
The report indicated that the decline in deposits during this fortnight was influenced by temporary factors, including festive-season cash withdrawals and an increase in currency circulation, which rose by approximately Rs 1 lakh crore YoY.
The slowdown in deposit growth may be linked to banks entering a rate-cutting cycle, prompting investors to seek alternative investment opportunities.
The short-term weighted average call rate (WACR) increased to 5.53 percent, up from 5.47 percent in the prior fortnight, and is currently three basis points above the repo rate of 5.50 percent, as reported.
This rise in WACR illustrates tighter liquidity conditions within the banking system, driven by heightened credit demand, even as the RBI continues to manage liquidity through variable repo rate operations (VRR), it concluded.
Point of View
The recent trends in bank credit and deposit growth signal significant shifts in the financial landscape. The emphasis on festive demand and MSME activity highlights the resilience of the economy, even as we navigate challenges. This situation requires ongoing monitoring to ensure stability and growth in the banking sector.
NationPress
09/11/2025
Frequently Asked Questions
What is the current bank credit growth rate?
As of mid-October 2023, the bank credit growth rate stands at 11.5 percent year-on-year.
Why are deposits declining?
The recent decline in deposits is attributed to festive-season withdrawals and an increase in currency in circulation.
What is the credit-to-deposit ratio?
The credit-to-deposit (CD) ratio has increased to 80.4 percent in the current fortnight.
How do GST cuts affect bank credit growth?
GST rate cuts have stimulated demand, particularly in festive seasons, contributing to increased bank credit growth.
What is the significance of the short-term weighted average call rate?
The WACR indicates liquidity conditions in the banking system, which currently reflects tighter conditions due to rising credit demand.
