The gap between credit and deposit growth is narrowing as banks offer high deposit rates, according to the Reserve Bank of India’s (RBI) monthly bulletin. The share of term deposits offering interest rates over 7 % increased to 66.9 % in June 2024, from 33.5 % in March 2023 and 4.5 % in March 2022
“Banks are also offering higher interest rates on deposits, with more than two-thirds of term deposits earning 7 per cent and above. The gap between credit and deposit growth is, however, beginning to narrow,” noted the bulletin.
The weighted average domestic term deposit rates (WADTDRs) on fresh and outstanding rupee term deposits increased by 245 bps and 189 bps, respectively during May 2022 to July 2024.
In the credit market, with deposit mobilisation becoming a challenge, banks continue to rely heavily on certificates of deposit to meet funding needs so that lagging deposit growth does not constrain credit.
Non-banking financial companies are increasingly turning to offshore bonds. Microfinance institutions are facing some asset quality issues, warranting slowing down the pace of loan growth.
Deposits are growing slower than credit, posing a challenge for banks to mobilise low-cost deposits. Banks credit grew 17.3% to reach Rs 168.8 lakh crore for the fortnight ended June 28, 2024, while deposits increased 11.1% to Rs 212.9 lakh crore.
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