• India's bank deposits have grown at a rate of 8.6%, surpassing credit offtake for the first time in 30 months.
• The credit-deposit ratio, a key liquidity indicator, has been around 80% since September 2023.
• The Short-term Weighted Average Call Rate has decreased to 6.43%, indicating surplus liquidity.
• The banking sector is witnessing a significant shift with deposit growth outpacing credit offtake, potentially influencing future banking strategies and policies.

In a significant economic development, India's bank deposits have grown at a rate of 8.6% as compared to December 2023, reaching a staggering Rs 218.1 lakh crore as of October 18, 2024. This marks the first time in the past 30 months that the growth of bank deposits has outpaced credit offtake on an annual basis.

This trend can be traced back to the rising term deposit rates of Scheduled Commercial Banks (SCBs), as reported by CareEdge Ratings. The report further elaborates that in absolute terms, deposits have expanded by Rs 17.3 lakh crore over the last nine months.

The Prominence of Deposits in FY25

The financial year 2025 has seen deposits remaining a prominent feature as banks have intensified their efforts to strengthen their liability franchise. Banks have also been sourcing funds via certificates of deposits at a relatively higher cost. The credit-deposit (CD) ratio, a key indicator of a bank's liquidity, has been hovering around 80% since September 2023. The CD ratio witnessed a marginal uptick, reaching 79.0% for the fortnight ending October 18, 2024, compared to 79.5% in December 2023.

When comparing growth rates with December 2023, deposit growth has continued to outpace credit offtake. Credit offtake increased by 8.0% compared to December 2023, reaching Rs 172.4 lakh crore as of October 18, 2024.

The report by CareEdge Ratings points out that mortgages and MSMEs account for the bulk of this increase. However, the growth slowdown compared to the previous year can be attributed to a higher base effect due to the merger and RBI measures such as higher risk weights and the proposed LCR norms.

The Shift in Credit Growth and Industry Impact

The Short-term Weighted Average Call Rate (WACR) has decreased to 6.43% as of October 18, 2024, compared to 6.74% as of October 27, 2023, indicative of surplus liquidity. On a year-on-year (YoY) performance basis, credit saw a growth of 11.7%, slower than the previous year's rate of 19.7%. Meanwhile, deposits saw a growth of 11.8%, compared to 13.4% last year.

In a related development, the overall non-food credit growth of the banks was brought down to 13.9% at Rs 163.46 lakh crore as of June 30, 2024, as against 16.3% in June 2023, due to an unfavorable base effect. This was even as gold and housing loans rose sharply, according to the Reserve Bank's latest data.

The rise in gold loans could be due to the sharp rise in gold prices in the last one year which prompted people to pledge gold to raise finances. Gold loan NBFCs also hold a sizeable gold portfolio with Muthoot Finance alone accounting for a loan asset portfolio of Rs 63,200 crore in 2023.

Credit to industry grew at 7.7% to Rs 37.12 lakh crore in June 2024 as compared with 7.4% in June 2023. Among major industries, while YoY growth in credit to chemicals and chemical products, food processing, and infrastructure was higher in June 2024, credit growth to basic metal and metal product, petroleum, coal products, and nuclear fuels and textiles moderated, as per RBI data.

However, credit growth to the services sector moderated substantially to 15.1% in June 2024 from 26.8% a year ago, primarily driven down by lower credit growth in non-banking financial companies (NBFCs) and trade segments.