Credit Growth Outstrips Deposits: Banking System Faces Liquidity Challenges

A recent FICCI-IBA report warns that credit growth is surpassing deposit growth, potentially leading to liquidity issues for banks. The report emphasizes the need for banks to raise deposits and keep credit costs low. It highlights the decline in CASA deposits and urges measures for cyber-risk management and ATM cost-effectiveness.

Credit growth is exceeding deposit growth, posing potential liquidity challenges for the banking sector, according to a FICCI-IBA report issued on Tuesday.

Banks are prioritizing raising deposits to match the pace of loan growth and maintaining low credit costs, the report highlighted.

The survey revealed that more than two-thirds of respondent banks noted a decline in the share of Current Account Savings Account (CASA) deposits. This trend is more pronounced among public sector banks, with 80% reporting a decrease in CASA deposits during the first half of 2024, alongside over half of the private sector banks.

Conducted for January to June 2024, the 19th round of the FICCI-IBA survey included 22 banks, representing 67% of the banking industry by asset size. A majority, 71%, reported a decrease in Non-Performing Assets (NPA) levels, with 90% of public sector banks and 67% of private sector banks noticing a reduction.

The report indicated a continued rise in long-term credit demand for sectors like infrastructure, metals, iron, and steel. Infrastructure credit flow increased, driven by governmental capital expenditure on the sector.

The partnership between banks and fintech firms is identified as key for innovation and financial inclusion enhancement. Banks also shared measures to improve cyber-risk management and suggestions for making ATMs more cost-effective, including strategic location selection, increasing interchange fees, and tech upgrades.

(With inputs from agencies.)