Despite the convergence of deposit growth with credit growth, banks are still struggling to attract depositors. Banks have raised Rs 10,000 crore less in deposits in the first 10 months of 2024 compared to the same period last year. According to data from the Reserve Bank of India (RBI), banks have raised Rs 19.6 lakh crore between January and October this year, compared to Rs 19.7 lakh crore during the same period last year.
The sluggish growth indicates that while deposit growth has converged with credit growth, this alignment is primarily due to cooling credit demand rather than a significant improvement in deposit mobilisation.
“Banks raised rates on fixed deposits earlier this year but now there is reluctance from the banks to hike rates further because it will impact their profit margins,” said a senior official public sector bank. “We are hopeful that deposits will grow in the coming months due to rate hikes done earlier,” he said.
Growth in deposits of banks this year has been slower than the last year. Outstanding deposits of banks have increased from Rs 200.8 lakh crore from January 1 this year to Rs 220.4 lakh crore, showing a growth of 9.8%. While, last year deposits had increased from Rs 177.3 lakh crore from January 1 to Rs 197 lakh crore at the end of October 2023, reflecting a growth of 11%.
“The amount of money which is going into savings has come down because of high inflation,” Madan Sabnavis, chief economist at Bank of Baroda told FE. “The government is following the ‘Just-in-time’ policy for release of funds while taxes are being paid on regular time. It has impacted banks’ deposits because the money is not reentering the banking system on a regular basis,” he added.
While deposit growth has converged with credit growth, this alignment is primarily due to a moderation in credit demand rather than a significant improvement in deposit mobilisation. The outstanding credit of banks grew from Rs 159.6 lakh crore at the start of January to Rs 174.4 lakh crore at the end of October, registering a growth of 9.3%. Last year, outstanding credit grew from Rs 133 lakh crore at the start of January last year to Rs 155.7 lakh crore at the end of October, showing a growth of 17%.
Outstanding deposits grew by 11.2% while outstanding credit increased by 11.1% during the fortnight ending November 15, according to RBI data.
Sluggish growth in the deposit has caught the attention of banking regulator. RBI governor Shaktikanta Das had, in July this year, raised concerns over the widening gap between credit and deposit growth saying it will expose the system to structural liquidity issues.