Moderating Credit Growth with Healthy Deposits Narrows Credit-Deposit Gap

Synopsis • Credit offtake witnessed a sustained growth at 15.4% year on year (y-o-y) to Rs.140.2 lakh crore for the fortnight ending June 16, 2023, driven by personal loans and lending to Non-Banking Financial Companies (NBFCs). Meanwhile, deposits also witnessed a healthy growth at 12.1% y-o-y in the fortnight partly supported by RBI's withdrawal of Rs. 2,000 denominated currency notes. The spread between credit and deposits growth dropped to 337 basis points (bps) in the fortnight as against 875 bps (largest) in November 2022. This can be attributed to moderation in credit growth over the last six months and a rise in deposit growth in the last two fortnights. In absolute terms, for the trailing twelve months, deposits expanded by Rs.20.0 lakh crore y-o-y while incremental credit expanded by Rs.18.7 lakh crore. The outlook for bank credit offtake continued to be positive due to economic expansion, rise in capital expenditure, implementation of the PLI scheme, and retail credit push. However, it is expected to moderate from 15.0% in FY23 to 13.0-13.5% in FY24. • Short-term Weighted Average Call Rate (WACR) stood at 6.1% as of June 16, 2023, as compared with 4.51% as of June 17, 2022. This increase can be attributed to elevated policy rates. Although, WACR has reduced from 6.69% as of May 04, 2023, due to a liquidity surplus available in the banking system over the last couple of months. • The outstanding liquidity stood at Rs. 0.85 lakh crore as of June 16, 2023, as compared with Rs.2.4 lakh crore as of June 2, 2023 and Rs. 2.3 lakh crore as of June 17, 2022. The liquidity in the banking system has improved compared with a deficit in the second half of FY23. Fortnightly_Update_on_Credit_and_Deposit_-