The credit-deposit ratio (CDR) of the banking system, or the proportion of deposits deployed as loans, dropped 155 basis points to 72.7%, the lowest in six years, in the fortnight ended November 11, data released by the Reserve Bank of India (RBI) showed.
The non-food credit growth during the fortnight hit an at least four-year low of 8.25% on a year-on-year basis, while food credit fell 14.3%.
The last time the CDR had seen a sharper drop was during the fortnight ended April 29, when it fell by 1.65% from the fortnight ago to 75.93%.
The sharp fall in the ratio was primarily because of a jump in the denominator, or a sharp increase in deposits with the banking system, which negated a fall in the credit outgo. During the fortnight under review, total deposits with banks rose by Rs 1.3 lakh crore, or 1.3%, whereas bank credit declined 0.8% to Rs 73.53 lakh crore.
The cash in hand with banks rose nearly 275% from the end of the previous fortnight to Rs 2.47 lakh crore, the highest in at least seven years.
The money parked by banks with the RBI through reverse repo operations under the central bank’s liquidity adjustment facility hit a record high of Rs 4.3 lakh crore as on November 22.
The fortnight included November 10 and 11, the first two working days after the demonetisation of Rs 500 and Rs 1,000 currency notes was announced, triggering a deluge of inflows into bank deposits.
Banks have been unable to ramp up lending in the absence of investments by the private sector.
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 23, Morgan Stanley wrote, “Given that the growth recovery has still not taken full hold, the impact of this demonetisation and the temporary uncertainty that may be created by implementation of the GST (Goods and Services Tax) starting in April 2017 could delay the private corporate capex recovery.”