The last time the deposits grew faster was during the fortnight ended August 4, 2017, when the value of banking deposits was Rs 107 lakh crore, up 10.27%.
Bank deposits grew over 10% on a year-on-year (y-o-y) basis during the fortnight ended February 15 for the first time in nearly one-and-a-half years, show data released by the RBI. As on February 15, the value of deposits with banks stood at Rs 121.21 lakh crore, up 10.16% y-o-y.
The last time deposits grew faster was during the fortnight ended August 4, 2017, when the value of banking-system deposits was Rs 107.04 lakh crore, up 10.27% y-o-y. Amid rising levels of cash in the system and the movement of household savings into mutual funds, banks had been struggling to ramp up their deposit figures.
The improvement in deposit growth is likely to offer limited relief to banks as the system still does not have the fund base to meet demand for credit, which has been growing faster than deposits for a few quarters now.
A recent report by rating agency Crisil estimated that banks need fresh deposits worth `20 lakh crore to meet loan demand. In other words, banks would have to grow their deposits by around 10% on an annualised basis, a full 400 basis points (bps) higher than the 6% growth seen in FY18.
Krishnan Sitaraman, senior director, Crisil Ratings, said in the report: “Lower deposit growth has meant a steady rise in the credit to deposit ratio (C/D ratio) on a stock basis, which is expected to touch 78% by the end of fiscal 2019 compared with 73% at the end of fiscal 2017.”
In a report dated March 11, India Ratings said that if credit growth continues to outpace deposit growth, then banks’ reliance on bulk deposits is likely to increase. This, in turn, could lead to a higher cost of funds, along with increasing volatility in the asset-liability structure of banks.
The competition for deposits could intensify further as a result of six banks under the RBI’s prompt corrective action (PCA) exiting the framework.
“With private banks seeing continuing strong credit growth at 22% y-o-y in Q3FY19, they are likely to solicit deposits even by offering higher rates. This could ultimately result in a divergence in the marginal cost of funds based lending rates of private banks and PSBs (public-sector banks),” analysts at India Ratings wrote.