Bank credit grew by 17.5 per cent year-on-year (YoY) to Rs 131.06 trillion in the fortnight ended December 2, reflecting the continuation of firm demand for loans in the economy, latest Reserve Bank of India (RBI) data showed.
Deposit mobilisation increased 9.9 per cent YoY to Rs 175.24 trillion during the period, a healthy rise from 9.6 per cent a fortnight ago, the latest data showed.
Deposit growth is picking up gradually as banks have begun to pass on the rate hikes done by the RBI.
As the system liquidity is shrinking, banks have become more aggressive to garner deposits to fund the high credit growth in the economy.
The swift pace of growth in bank credit alongside slower deposit growth has exerted pressure on banks to mobilise funds, with lenders raising deposit rates as well as turning to debt capital markets en masse over the past few months to raise money.
Earlier this week, banks made a beeline to raise deposit rates as major private lenders such as HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank raised interest rates on their deposits.
IDFC First Bank, Equitas Small Finance Bank, and AU Small Finance Bank also announced revised deposit rates over the past few days, with analysts saying that rates were finally moving in line with the RBI’s policy rate hikes.
Country’s largest lender State Bank of India (SBI) raised deposit rates by 15-100 basis points, the maximum increase being for bulk deposits. Having said that, the critical 1–3-year deposit rates have been increased by 50-65 bps by SBI.
That said, there is still a wide gap between deposit and credit growth. Analysts said the gap would start to narrow going into the next year. Going forward, they expect a combination of factors, including the RBI’s rate hikes, slowing GDP growth, and the normalisation of the base effect, to blunt the sharp growth in credit. Credit growth has moderated from around 18 per cent in early October.
According to experts, as bank interest rates move up tracking the RBI’s policy rate hikes, the rate differential between banks and debt capital markets would also shrink, which would also slow down the pace of credit growth. The central bank’s tighter policy would naturally impact credit growth by reducing aggregate demand in the economy. So far in 2022, the RBI has hiked the repo rate by 225 bps.