Credit growth in banks continues to exceed deposits, says new SBI report

A research report by the State Bank of India (SBI) highlights the continuous upward trend in credit growth in Indian banks, which is outpacing the growth of deposits. This trend persists even as Indian households have substantially increased their investments in mutual funds and equities. For the last several months, investments of over Rs 21,000 crore are being done in mutual funds.

Last month, during an event, RBI Governor Shaktikanta Das noted that households are opting for capital markets over banks to invest or park their savings.

However, the SBI report states, "Latest fortnightly credit and deposit growth number shows credit growth continues to outpace deposit, though moderated from last year growth of 16.2 percent (June'23 YoY)."

Specifically, for the fortnight ending July 12, 2024 the report noted that the credit growth for All Scheduled Commercial Banks stood at 14 per cent on a year-on-year basis, while deposit growth was reported at 11.3 per cent.

Furthermore, the report also served a significant increase in credit to the industrial sector, which rose from 5.1 percent in March 2023 to 8.4 percent in March 2024, and recorded 8.1 percent growth in June 2024 year-on-year. This indicates a robust demand for credit within the industrial sector.

Despite big savings going towards the capital markets, banks have managed to gather an incremental deposit of Rs 7.02 lakh crore in the year-to-date (YTD) period ending July 12, 2024. In comparison, the incremental credit extended by the banks amounted to Rs 3.80 lakh crore during the same period. This discrepancy illustrates that while credit growth is substantial, deposit growth remains essential to maintain balance.

Additionally, the report highlighted that banks' reliance on high-cost deposits, such as Certificates of Deposit (CDs), has more than tripled. This increase is a response to the need to match the rising credit demand, showing how banks are adjusting their funding strategies to accommodate the growing demand for loans.

RBI Governor stated last month, "While bank deposits continue to remain dominant as a percentage of the financial assets owned by the households, their share has been declining, with households increasingly allocating their savings to Mutual Funds, Insurance Funds, and Pension Funds."