Banks’ credit growth slowed down to 14% year-on-year (YoY) as on June 28, from 16% in the previous fortnight and 16.2% a year ago, the Reserve Bank of India (RBI)’s monthly bulletin said on Thursday.
According to CareEdge Ratings, the slowdown in the credit growth can be attributed to a decline in credit demand, RBI measures like higher risk weights on unsecured loans and a higher base effect. However, the outlook for bank credit offtake continues to remain positive, with the rating agency expecting 14-14.5% growth in the current fiscal.
Overall deposits rose at a slower pace 11.1% as on June 28, leading to a heightened incremental credit-deposit ratio of 101%.
“With the statutory requirements for CRR and statutory liquidity ratio (SLR) at 4.5% and 18%, respectively, around 77% of deposits were available with the banking system for credit expansion as on June 28, 2024. The deposit base was supplemented by CDs issuances,” the RBI bulletin said.
In response to the central bank’s 250-basis-point (bps) policy rate hike since May 2022, banks have revised upwards their repo-linked external benchmark-based lending rates. The on-year median marginal cost of funds-based rate of banks has increased by 168 bps during the May 2022–June 2024 period. Consequently, weighted average lending rates on fresh and outstanding rupee loans rose by 188 bps and 111 bps, respectively.
In case of deposits, weighted average domestic term deposit rates on fresh and outstanding deposits increased by 244 bps and 190 bps, respectively, during the same period. Among domestic banks, increases in deposit and lending rates were higher in the case of public sector lenders, except for outstanding loans. Lending rates of PSBs remained lower compared with private sector banks while their deposit rates were higher, the RBI said.