With the growth in non-food credit hitting about four-year low of 6.99% on a year-on-year basis, the credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, dropped to 69.3%, during the fortnight ended...
With the growth in non-food credit hitting about four-year low of 6.99% on a year-on-year basis, the credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, dropped to 69.3%, during the fortnight ended November 25, the lowest in seven years, data released by the Reserve Bank of India showed.
The last time the CD ratio had fallen lower was in the fortnight ended November 27, 2009, when it had stood at 69.25%.
The credit-deposit ratio fell 377 basis points (bps) from the end of the previous fortnight, largely on account of a jump in the denominator, or a sharp increase in deposits with the banking system, which negated the steep fall in credit outgo.
During the fortnight under review, total deposits with banks rose by Rs 4.03 lakh crore, or 15.9%, whereas bank credit grew 6.6% to Rs 72.92 lakh crore.
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The cash in hand with banks rose nearly 282% from the end of the previous fortnight to Rs 2.49 lakh crore, the highest in at least seven years. The two-week period under review constituted the first full fortnight after the demonetisation of Rs 500 and Rs 1,000 currency notes was announced, triggering a deluge of inflows into bank deposits.
Analysts expect the demonetisation of high-value notes to delay the onset of an economic recovery and a resultant rise in private investments.
In a note dated November 21, investment bank Jefferies wrote, “Beyond the cash-freeze worries, discretionary consumption takes a hit exacerbated by a squeeze as untaxed currency moves out of the system or its velocity slows down and demand/sentiment adjusts to the new reality. This could take anywhere between two to six quarters, if not longer.”