The gap between credit growth and deposit growth is widening. Concerns are growing that deposit growth of less than 9 percent could pose funding challenges for lenders as they enter the festive season, which sees high credit demand.
However, experts believe the liquidity of the banking system is still comfortable as banks park more than Rs 3 trillion in the Standing Deposit Facility (SDF) and the Reserve Bank of India’s (RBI) reverse repo window.
As liquidity in the system will be eroded to support high credit demand, banks may soon have to aggressively chase deposits, which in turn will lead to higher deposit rates.
According to the latest data from the Reserve Bank of India (RBI), credit growth in the system was 14 percent in the fortnight ended July 15. However, deposit growth during the same period was only 8.4 percent, leading to a spread of credit. – deposit growth gap of 560 basis points (bps).