Credit growth outstrips deposit increase in FY24

MUMBAI: The competition for deposits among banks is likely to continue as the gap between deposits and bank credit growth persisted into March 2024.
According to data released by RBI, bank credit growth exceeded the increase in deposits in FY24 by Rs 2 lakh crore. Data in RBI's weekly statistical supplement showed outstanding bank deposits at Rs 210 lakh crore on April 5, representing an increase of Rs 26 lakh crore or 14% from the end of the previous financial year.Meanwhile, bank credit rose 20% to Rs 166 lakh crore during the same period.
One indication of the fight for deposits is the shift of money from savings accounts to fixed deposits, where banks have been offering higher rates. Of the Rs 25.5 lakh increase in deposits during the year, only Rs 3.8 lakh were added to savings accounts, while the remaining Rs 21.7 lakh were added to fixed deposits.
The pace of growth in bank credit is the highest in more than a decade. This is due to the merger of HDFC Bank with HDFC, which has added over three percentage points to the increase in bank credit. Without the merger, the rise in bank deposits would have been 13.2%, and the increase in credit would have been 16.1%, which is still higher than 15.8% last year.
The HDFC-HDFC Bank merger has significantly increased bank lending to the housing sector while reducing bank lending to the NBFC sector.
According to CareEdge ratings, bank credit growth is expected to moderate to 14-14.5% in FY25 as the impact of HDFC-HDFC Bank merger will dissipate by the second quarter. The rating agency has forecasted a 16% credit growth for FY24, excluding the impact of the HDFC-HDFC Bank merger.
The highest growth in bank credit was recorded in the financial year ending March 2007, when the industry's loan book grew by 27%. A year later, bank credit grew by 24%.