The non-food credit of the banking sector continues to sustain higher levels on account of a lower base, with the loan growth being at 17.9% for the fortnight ended December 2, data released by the Reserve Bank of India (RBI) showed. Banks’ total loans outstanding during the fortnight stood at Rs 130 trillion.

Although the personal loan and services segments continue to lead growth in loans, credit to the industry has also touched levels seen in 2014. The loan growth to industry is coming from sectors such as cement and steel, which have considerably deleveraged due to a mix of increasing working capital requirements and some return in capex-led demand, according to analysts at Macquire Research.

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Despite the stellar growth on the credit side, analysts are expecting the lagging deposit growth a major pain point for banks to sustain this credit growth. Deposits in the banking system grew 9.8% YoY during the fortnight ended December 2. Total outstanding deposits stood at Rs 175 trillion, data showed.

Higher competition among banks for deposits will likely put some pressure on their net interest margins, analysts say. The growth in low-cost savings accounts and current accounts (CASA) is dwindling as depositors are shifting their savings to fixed deposits, according to a report by Kotak Institutional Equities.

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Earlier this week, top lenders State Bank of India (SBI) and HDFC Bank sharply raised interest rates on retail term deposits. While SBI raised deposit rates by 65 basis points (bps), HDFC Bank hiked rates by 40 bps on key retail term deposits maturing in a year.

However, the difference in the credit and deposit growth needs to be looked into in a proper perspective, as the credit growth is on a low base while the deposit growth is on a higher base due to the pandemic, RBI governor Shaktikanta Das said in a post-policy meeting.

Analysts at Macquire Research expect the base effect to normalise next year, with credit growth coming down to 14-15% and deposit growth inching up to 11%.