SBI Debunks Myth of Declining Deposits Amid Strong Credit Growth

SBI's latest report highlights robust deposit growth in the banking sector, debunking myths of deceleration. The analysis reveals that credit growth outpaced deposit growth, yet deposits have surged significantly. Term deposits have increased due to rising interest rates, while CASA deposits have seen a slight decline.

Finance Minister Nirmala Sitharaman held a review meeting with the heads of Public Sector Banks and Regional Rural Banks on Monday. Contrary to popular belief, the State Bank of India (SBI) in its latest report revealed that the notion of declining deposit growth in the banking sector is a statistical myth.

According to the report, in FY23, All Scheduled Commercial Banks (ASCBs) saw the highest absolute growth in both deposits and credit since 1951-52. Deposits increased by Rs 15.7 lakh crore, while credit grew by Rs 17.8 lakh crore, resulting in an unprecedented 113 per cent incremental Credit-Deposit (CD) Ratio. This trend persisted into FY24, with deposits rising by Rs 24.3 lakh crore and credit by Rs 27.5 lakh crore.

SBI's report indicates that since FY22, incremental deposit growth has actually surpassed incremental credit growth, with deposits surging by Rs 61 trillion compared to Rs 59 trillion in credit. A key issue identified is not the amount of deposits, but the pricing. Historical patterns show that divergences between credit and deposit growth can last for 2 to 4 years, and according to RBI, the current cycle might end between June and October 2025.

Once this divergence concludes, deposit growth is likely to accelerate, while credit growth could decelerate, signaling a potential rate reversal and economic slowdown. A notable trend is the decline in CASA deposits, which fell to 41.0 per cent in FY24 from 43.5 per cent in FY23. This change reflects a shift towards using Savings Bank (SB) deposits mainly for transactional purposes such as UPI transactions, raising concerns about their stability.

Additionally, rising returns on term deposits have prompted a significant shift in the composition of bank deposits. The proportion of term deposits increased to 59.0 per cent in FY24 from 56.5 per cent in FY23. On an incremental basis, term deposits represented nearly 78 per cent of total deposits in FY24. In summary, while the myth of declining deposit growth persists, the reality is more complex. Deposit growth remains robust, with term deposits increasingly favored due to higher interest rates.

(With inputs from agencies.)