Banks Struggle to Mobilize Deposits Amid Soaring Credit Demand

Banks have faced difficulties in mobilizing large deposits to meet the rising credit demand over the past two financial years. Credit growth outpaced deposit growth, with the Credit-to-Deposit ratio increasing. The trend shows a rise in young investors interested in equity markets, while deposit accumulation slows, especially in rural areas.

Banks have struggled to mobilize large deposits in the face of rising credit demand over the past two financial years, according to a recent report by Infomerics Ratings. Outstanding credit disbursed by Scheduled Commercial Banks (SCBs) hit Rs 1,64,98,006 crore in 2023-24, with the Credit-to-Deposit (C-D) ratio growing from 75.8% to 80.3%.

The Reserve Bank of India's April 2024 Bulletin reveals the incremental Credit-Deposit Ratio (ICDR) stood at 95.94% in March 2024, slightly down from 92.95% earlier that month. This indicates a much higher growth of credit compared to deposits, even on a Quarter-on-Quarter basis. The trend persisted from FY'19 to FY'24.

Contributing factors include alternative investments and significant cash holdings in the unorganized sector, particularly in rural areas. There's also an increasing interest in equity markets among young investors, with those under 30 making up 39.9% of the registered investor base by FY'25. To address these issues, True North Financial Services CEO Rochak Bakshi suggests banks focus on small-ticket retail deposits and calls for governmental tax reforms on interest income to encourage savings.

(With inputs from agencies.)