Deposits may have remained stable over the past two weeks, but compared to last year’s levels, deposit growth has been stronger.
Bank credit grew marginally in the fortnight ended on October 9 compared to the previous 14 days, which ended on September 25, suggesting risk aversion in the banking sector. Total bank credit at the end of 9 October was Rs 103 lakh crore, compared to Rs 102.7 lakh crore at the end of September 25, data provided by Care assessments shows. In relation to the previous year, credit growth registered an increase of 5.7% in the year. On the other hand, deposits grew 10.5% year on year and remained practically stable compared to the previous fortnight.
Although bank credit may have grown marginally, the levels of growth recorded during the same period last year were higher. “Credit growth decelerated to 5.1% and 5.7% over the past two weeks, compared to last year’s level of 8.8% and 8.9%, respectively, reflecting weak demand and aversion to banking system risk due to the COVID-19 pandemic, ”said the report. Concerns about asset quality kept commercial banks at bay during the pandemic. Despite the slow growth in credit, disbursements to medium, micro and small companies (MSMEs) remained strong under the Emergency Credit Line Guarantee Scheme. More than half the amount under the scheme has so far been sanctioned.
Deposits may have remained stable over the past two weeks, but compared to last year’s levels, deposit growth has been stronger. Deposits increased 10.5% compared to 9.8% in the year-ago period. “In addition, the liquidity surplus in the banking system in the fortnight ended on October 9 was Rs 3.86 lakh crores. The surplus of liquidity can be attributed to the growth of deposits, surpassing the growth of credit in a persistent way ”, said Care Ratings.
Going further, the report adds, the liquidity of the banking system is expected to remain in a surplus position, aided by the sustained growth of bank deposits, as opposed to the slower growth in bank credit growth. The liquidity surplus in the banking system may be hurt by the forthcoming government loans of Rs 28,000 crore by the central government and Rs 34,135 by the state governments.
Slower credit growth over the past month has forced the credit / deposit ratio to remain fixed at similar levels.
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