Tide Turns: Credit offtake slows as deposit growth outpaces lending: CareEdge

Tide Turns: The Indian banking sector is witnessing a shift as credit offtake slows down, despite a year-on-year increase of 13.9 per cent, reaching Rs 168.1 lakh crore by mid-July 2024. This deceleration, driven by a higher base effect and cautious management of the credit-to-deposit (CD) ratio, contrasts with the robust growth in deposits, which have surged by 11.3 per cent y-o-y. As the CD ratio hovers near 80 per cent, the gap between credit and deposit growth is widening, signalling potential challenges for credit expansion in the coming months.

Credit Offtake Grows at Slower Pace

Credit offtake in India continued its upward trend but at a slower rate, increasing by 13.9 per cent year-on-year (y-o-y) to reach Rs 168.1 lakh crore for the fortnight ending July 12, 2024. The deceleration can be attributed to a higher base effect and banks' focus on restraining the credit-to-deposit (CD) ratio. Sequentially, credit offtake declined by 0.4 per cent compared to the previous fortnight. Over the past year, credit expanded by Rs 20.4 lakh crore, though the data includes the impact of the recent HDFC and HDFC Bank merger.

Deposits Continue to Outpace Credit Growth

Deposits grew by 11.3 per cent y-o-y for the same fortnight, reaching Rs 211.8 lakh crore. In absolute terms, deposits increased by Rs 23.9 lakh crore over the last twelve months. Despite a slight sequential decline of 0.5 per cent, deposit growth is expected to remain robust in FY25 as banks intensify efforts to strengthen their liability franchise. The use of certificates of deposits (CDs) has also gained traction, helping to mitigate potential constraints on credit uptake due to slower deposit growth.

Credit-Deposit Ratio Hovers Near 80 per cent

The Credit-Deposit (CD) ratio for the fortnight ending July 12, 2024, stood at 79.4 per cent, slightly up by 10 basis points from the previous fortnight. However, if we exclude the merger impact, the CD ratio for the current period is approximately 77.4 per cent. This ratio has been hovering around the 80 per cent mark since September 2023. Analysing the inflows over the past three and six months, credit growth has lagged behind deposit growth, with the CD ratio derived from these flows being around 70 per cent since January and approximately 54 per cent since March. This suggests that bank credit offtake may face challenges and is likely to remain subdued for the year.