Credit growth exceeds deposit growth in January, 24 fortnight

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Gayatri Nayak

, ET BureauLast Updated: Feb 06, 2025, 09:20:00 PM IST

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Bank lending growth surpassed deposit growth at the start of Q4, pressuring banks to increase deposit rates. Lending rose 11.4% year-on-year as of January 2025, while deposits grew 10.3%. RBI's measures and a focus on managing the Credit-to-Deposit ratio contributed to the slowdown.

Credit growth exceeds deposit growth in January, 24 fortnight

Bank lending again outpaced deposit growth in the beginning of the fourth quarter putting pressure on resources forcing many banks to raise deposit rates.

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Lending increased 11.4 percent year-on-year as of January 24, 2025 compared to over 15 percent in the same period a year ago, while deposits rose 10.3 percent compared to 13.2 percent in the same in the same period a year ago, the latest Reserve Bank of India data released on Thursday shows

This slowdown is attributed to a higher base effect, RBI measures such as higher risk weights and the proposed liquidity coverage ratio (LCR) norms, and a focus on managing the Credit-to-Deposit ratio which continues to hover around 80%, according to Caredge Ratings.

After reporting strong growth in FY’24, credit offtake is expected to moderate in FY25. This slowdown is largely driven by decreased unsecured retail lending and slower advances to NBFCs.

Higher risk weights and asset quality issues in specific segments are anticipated to keep growth subdued in the near term, Caredge said in a report. Additional challenges include an increased emphasis on strengthening the deposit base and managing the Credit-to-Deposit ratio, which is currently around 80%. Other factors are tight liquidity conditions, expected higher provisioning for the infrastructure sector, and the proposed liquidity coverage ratio (LCR) regulations.

The Reserve Bank has raised concerns over slowdown in bank deposits and that resorting to non deposit sources to fund growth would have implications of cost of funds and profit margins of banks.

“Recent trends indicate a shift in household preference to financial assets for saving purposes leading to movement of these savings beyond traditional bank deposits towards capital market assets” said deputy governor M Rajeshwar Rao in a recent speech.

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