The growth in bank deposits accelerated to 15.4% year-on-year as of July 31, the fastest pace since December 2016, as strong mobilisation of foreign currency non-resident (bank) {FCNR(B)} deposits under the Reserve Bank of India’s special swap facility boosted the liability accretion, CareEdge Ratings said in a report.
Deposit growth had stood at 12.7% as of July 15 and 10% in the year-ago period. Aggregate deposits rose to Rs 269.4 lakh crore, with incremental deposits increasing by Rs 6.57 lakh crore during the fortnight. Time deposits led the increase, growing 14.8% year-on-year to Rs 235.1 lakh crore and accounting for 87.3% of total deposits. Demand deposits grew 19.3%.
FCNR(B) inflows under the special facility had reached $36.7 billion by July 31, providing banks with an additional source of foreign currency funding and greater near-term liquidity flexibility, the report said. The RBI had shortened the hedging window under the facility to August 31 from September 30 following the stronger-than-expected response.
The rating agency said the credit growth remained broad-based, supported by retail credit, lending to MSMEs, services and infrastructure-linked sectors, as well as bank funding to NBFCs. However, the current pace is unlikely to be sustained through FY27 and is expected to moderate to 14.5-15.5% as the base normalises and corporates and NBFCs increasingly tap market-based funding.
The sharp rise in deposits also helped narrow the gap between credit and deposit growth. Bank credit growth accelerated to 19.3% as of July 31 from 17.7% a fortnight earlier, while outstanding credit rose to Rs 220.8 lakh crore. The credit-deposit growth differential narrowed to 395 basis points from 503 basis points.
The loan-to-deposit ratio moderated to 81.9% from 82.7% as deposit accretion outpaced credit growth during the fortnight. However, the ratio remained significantly above 78.9% recorded a year earlier, indicating that banks would still need to strengthen their liability mobilisation to support continued lending.