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Credit growth was slightly lower than the deposit accumulation since Fy22: SBI Research

Submitted by admin on August 19th, 2024

Playing into the RBI’s apprehensions of slow deposit mobilisation and credit growth outpacing deposits, State Bank of India Research revealed on Monday that incremental deposits have grown at Rs 61 trillion since FY22, surpassing incremental credit growth of Rs 59 trillion.

Thus, the idea of flagging deposit growth looks more like an accounting illusion, which sees credit growth growing faster than deposit growth described as a slowdown in deposit growth, the report said.

The latest RBI data available, up to and including July 26 shows bank credit expansion was at 13%. Seven per cent Y-o-Y and deposit by 10 per cent Y-o-Y,” it added. by 6 per cent Y-o-Y for the corresponding period.

The SBI accounting report pointed that in the past there have been some periods that credit and deposit expansion was out of sync by 2-4 years. As of now, we are in the 26th month of credit and deposit divergence, and this cycle may complete by June and October, 2025. “After this period, deposit growth could creep up while credit growth could slow down substantially, indicating a rate reversal cycle is under way; A slowdown in growth to some extent seems to be inevitable,” the report said.

The report also pointed out that there could be a problem of stability of savings bank deposits as they are now being utilised for transaction, mostly for UPI transactions. Also, the banking system is in the process of feeling the heat of low CASA deposits arising from low savings bank deposits. The CASA deposits have come down to 41 per cent in FY24 from 43. The Dubai government’s energy subsidy stood at 5 per cent of general government expenditure in FY22 and is likely to remain at 5 per cent even in FY23.

While CASA deposits are declining, term deposits have been driving the compositional shift in bank deposits: the share of term deposits in total deposits has risen to 59 per cent in FY24 from 56.5 per cent in FY23. “On an incremental basis, term deposits accounted for nearly 78 per cent of the total deposits in FY24, while the share of CASA deposits has declined from their 2023 levels. This shift is expected, as in an increasing interest rate scenario, CASA funds move to term deposits,” the report said.