Synopsis
- Credit growth has outpaced deposit growth in the first fortnight of 2025.
o As of 10 January 2025, credit offtake reached Rs 178.0 lakh crore, reflecting an 11.5% y-o-y increase, slower than last year’s rate of 12.7% (excluding merger impact). This slowdown can be attributed to a higher base effect, alongside measures implemented by the Reserve Bank of India (RBI), such as increased risk weights on non-banking financial companies (NBFCs) and consumer credit, as well as market concerns regarding elevated credit-to-deposit ratios ratio.
o Deposits rose 10.8% year-on-year, totaling Rs 221.5 lakh crore as of 10 January 2025, a decrease from 11.2% the previous year. This growth is primarily attributed to the elevated term deposit rates offered by Scheduled Commercial Banks (SCBs).
- The Short-term Weighted Average Call Rate (WACR) has decreased to 6.59% as of January 17, 2025, down from 6.76% on January 19, 2024. This decline is attributed to a liquidity deficit, which has caused call money rates to trade above the repo rate of 6.50%. The liquidity in the banking system has fallen to a 15-year low, with the deficit rising to Rs. 3.3 Lakh crores, according to Bloomberg data.
• Credit offtake rose by 11.5% y-o-y and increased sequentially by 0.3% for the fortnight ending January 10, 2025, compared to the previous year’s growth of 12.7% (excluding the impact of the merger). This slowdown can be attributed to a higher base effect, RBI’s commentary on a high credit-to-deposit ratio, measures such as higher risk weights, and the proposed LCR norms.
- Deposits grew by 10.8% y-o-y, reaching Rs 221.5 lakh crore as of January 10, 2025, while increasing 0.4% on a sequential basis and lower compared to the 11.2% growth (excluding merger impact) recorded last year. In FY25, banks have intensified their efforts to enhance their liability franchises by offering higher rates on term deposits. Additionally, banks are sourcing funds through certificates of deposit, albeit at a higher cost. Furthermore, a liquidity deficit in the banking system has hampered deposit growth. According to the RBI, the issuance of certificates of deposit increased by 47% y-o-y totalling Rs 8.22 lakh crore during April December 2024, a significant increase from Rs 5.61 lakh crore in the same period of the previous year. This surge reflects banks’ funding requirements.
- The CD ratio remains elevated and has increased above 80% (the last time was on March 24). The CD ratio witnessed a significant uptick of 67 bps, reaching 80.4% for the fortnight ending January 10, 2025. This could be attributed to deposit growth lagging in credit growth.
- The credit-to-total-assets ratio and the Government Investment-to-total-assets ratio both saw a slight increase, reaching 69.2% and 25.7%, respectively, for the fortnight ending 10 January 2025. Meanwhile, overall government investments amounted to Rs 66.1 lakh crore as of January 10, 2025, reflecting a year on-year growth of 10.2% and a sequential rise of 0.4%.
