Credit-deposit (CD) ratio, which indicates not just the demand for loans but also banks’ liquidity position, is near a four-year low, with banks lending only Rs 74.85 out of every Rs 100 of deposits they garnered in September.
Data from the Reserve Bank of India show that the CD ratio has been declining over the last eight months and incremental CD ratio has plummeted to 33.11% as of September 18 from 38.01% a year ago. The fall in this ratio has been primarily due to a far greater fall of credit growth compared with deposit growth.
Loan growth hit a 20-year low in June, slipping below 9%, and has stayed around that level since then. While deposit growth did fall to 11.42% (a 50-year low) in March and has remained largely around that level since then, it has been faster than credit growth. A slow economic recovery and a large pile of stalled projects had dragged down fresh investments and, thereby, loan growth over the last three years.
A report by Standard Chartered Bank based on investment data showed that recovery in investment growth slowed during the July-September quarter after being on an uptrend since mid-2014.
“However, new investment announcements rose for the fifth successive quarter. Investment proposals worth Rs 3.5 lakh crore were announced during the quarter, versus an average of Rs 2.6 lakh crore in the previous four quarters,” the report said.
Bankers are hopeful that as the investment cycle picks up, loan demand from companies will increase in the second half of the current financial year. “We are hopeful that in the second half of this year, we would see substantial pick-up in loan growth, especially in the retail segment. Therefore, we could see the CD ratio going up and the difference between loan and deposit growth shrinking,” said SKV Srinivasan, executive director, IDBI Bank.
Further, the wedge between credit and deposit expansion had shrunk with deposits growing by 14.3% in 2012-13 and credit at 14.1%. In 2014-15, this difference has widened to 1.9 percentage points.