The average credit-deposit (CD) ratio of banks is likely to remain higher than 75% in the current financial year, as the credit growth continues to outpace deposits, albeit at a slower pace, industry watchers told FE. According to the latest Reserve Bank of India (RBI) data, banks’ CD ratio rose to 75.8% as on March 24 from 72.22% a year ago.
Krishnan Sitaraman, senior director and deputy chief ratings officer at CRISIL, said when Covid-19 started three years back, for nearly two years, the credit growth was lower on account of lockdowns and subsequent economic slowdown. Banks’ deposit growth, meanwhile, stayed steady at around 9-11% during the period and the CD ratio fell as lenders shored up their liquidity.
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However, the economy has since rebounded and there is more demand for credit, Sitaraman said, adding if one looks at the previous three-four quarters, credit growth was outpacing deposit growth. “This fiscal also, I expect the credit growth to be higher than deposit growth, which means the CD ratio is expected to continue to inch up — to what extent though is something we will have to see, but directionally, it will continue to move up. If deposit growth picks up faster, the rise in CD ratio will be lower…” he said.
As per Q4FY23 provisional data shared by private banks with the exchanges, IndusInd Bank, YES Bank, Federal Bank and RBL Bank saw the credit growth being higher than deposit growth. while in the cases of HDFC Bank and Bandhan Bank, the deposit growth was higher than the credit growth.
IndusInd Bank’s net advances grew 21% YoY during Q4FY23 to Rs 2.89 trillion and deposits grew 15% YoY to Rs 3.36 trillion. Federal Bank’s total advances grew 20% to Rs 1.77 trillion and deposits rose 17% to Rs 2.13 trillion.
As per Aashay Choksey, vice president at rating agency ICRA, with rising interest rates and weaker outlook for exports, overall credit growth is expected to decelerate in the current fiscal from the levels seen in FY23. However, deposit growth is still expected to lag credit growth, resulting in a rise in the CD ratio, although the increase is likely to be less steep in comparison with FY23.
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“Overall credit growth is expected to settle at 11%-12% in FY24 as compared to 16% expected in FY23, while overall deposit accretion is expected to trail at 8%-9%, compared to 9%-10% in FY23 (estimated). Despite a slower credit growth, liquidity conditions are expected to remain tight as a result of which the CD ratio is likely to remain higher than 75%,” Choksey said.
Suresh Khatanhar, deputy MD at IDBI Bank, said with the average CD ratio currently at around 75%, there is still headroom for banks to support credit growth. “While both credit and deposits having recorded strong growth in the last two years, indicating stability in the liquidity situation, credit growth has outpaced deposits over the last 12 months. Both corporate India and the government are making fresh investments, so I don’t expect any dent in the demand for credit,” he said.
