Credit-deposit gap narrows as banks boost deposit rate: RBI report | Finance News
The gap between credit and deposit growth of banks—which was a key concern for the Reserve Bank of India (RBI) for the last two years—is finally narrowing, the state of the economy report released by the central bank on Friday said.
According to the latest data, as on September 6, the gap was a little over 2 percentage points, down from more than 700 basis points (bps) at the start of 2024. Banks’ loan growth moderated to 13.3 per cent, while deposit growth topped 11 per cent.
“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,” the report said.
Observing that banks are offering higher interest rates on deposits, with more than two-thirds of term deposits earning 7 per cent and above, the report said, “The gap between credit and deposit growth is, however, beginning to narrow.”
During the August review of the monetary policy, Governor Shaktikanta Das cautioned banks that are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand.
The state of the economy report also had a word of caution for microfinance institutions, as it asked those lenders to slow down loan growth, citing the build-up of non-performing assets.
“Microfinance institutions are facing some asset quality issues, warranting a slowing down in the pace of loan growth,” the report said.
Another word of caution was for the private credit market. The report said rough estimates suggest private credit assets under management are around $15 billion. Fintech lenders, which are reported to have captured over 52 per cent of the market share of personal loans, are increasingly turning to private credit to raise funds and diversify borrowing sources.
“The resilience of private credit in a credit downturn, however, remains untested,” it said.
Commenting on inflation, the report described the headline retail inflation staying below the 4 per cent target of RBI as a ‘positive development’.
It also noted that as some vegetable price shocks have begun to reverse, the persistence that characterised food inflation developments in the first quarter of 2024–25 ‘may be behind us’.
Observing that an unfavourable base effect may affect the September headline inflation number, the report stated that the outlook for international crude prices has turned benign and may be sustained.
The report said: “The prospects of headline inflation averaging 4.5 per cent in the second half of 2024–25, as set out in the August 2024 resolution of the monetary policy committee, have improved,” while adding that food price volatility remains a contingent risk, in light of recent experience.
With headline inflation easing, household consumption is poised to grow faster in the July–September quarter, with the revival of rural demand already taking hold.
“Yet another consumption booster is the ramping up of hiring by e-commerce majors ahead of the festival season, not just in the metros but in tier-II and III cities as well,” it said. The report also noted that the demand for fast-moving consumer goods (FMCG) is accelerating as companies target older customers with healthy lifestyle products in response to rising longevity.
Commenting on the Q1 GDP numbers, the report said domestic drivers—private consumption and gross fixed investment—were robust and net exports remained sequentially positive in their support to gross domestic product (GDP) growth. “The underperformance of agriculture was compensated for by a buoyant manufacturing sector and resilient services,” it added.
First Published: Sep 20 2024 | 8:52 PM IST
