Bank Credit Growth Slows Amid Liquidity Concerns and Rising Credit-Deposit Ratio

A recent report by CareEdge Ratings highlights a slowdown in bank credit growth to 11.1% YoY, down from last year's 12.1%. This is due to a higher base effect and liquidity concerns. Total bank deposits rose by 10.2%, with a slower pace attributed to the high credit-to-deposit ratio.

Credit growth in banks has decelerated, increasing by only 11.1% year-on-year as of March 7, according to data from CareEdge Ratings. Total bank credit reached Rs 181.3 lakh crore, showing a marginal uptick, yet slower than the 12.1% growth noted last year, largely due to a substantial base effect and measures from the Reserve Bank of India (RBI).

As credit outpaces deposits, resulting in a rising credit-to-deposit ratio, banks face liquidity challenges. Total deposits reached Rs 225.1 lakh crore, marking a 10.2% increase, slightly less than the previous year's 10.5% growth rate. The slower deposit growth is linked to tighter liquidity despite competitive term deposit rates.

Continuous RBI cautions regarding the high credit-to-deposit ratio underscore potential liquidity risks if credit advances continue to overshadow deposit accumulation. To maintain viable lending practices, banks are tasked with addressing this growth disparity amid ongoing tight liquidity and the central bank's prudent policies.

(With inputs from agencies.)