SBI Report: Indian Banks See Faster Credit Growth Than Deposits, Says RBI Governor Shaktikant Das
A recent report by the State Bank of India (SBI) highlights that credit growth in Indian banks is outpacing the growth of deposits. This trend continues even as Indian households have significantly increased their investments in mutual funds and equities.
For the last several months, investments of over Rs 21,000 crore have been made in mutual funds. Last month, during an event, RBI Governor Shaktikant Das noted that households are opting for capital markets over banks to invest or park their savings.
However, the SBI report states, “Latest fortnightly credit and deposit growth number shows credit growth continues to outpace deposit, though moderated from last year growth of 16.2% (June’23 YoY).” Specifically, for the fortnight ending July 12, 2024, the report noted that the credit growth for All Scheduled Commercial Banks stood at 14% on a year-on-year basis, while deposit growth was reported at 11.3%.
Furthermore, the report also observed a significant increase in credit to the industrial sector, which rose from 5.1% in March 2023 to 8.4% in March 2024, and recorded 8.1% growth in June 2024 year-on-year. This indicates a robust demand for credit within the industrial sector.
Despite substantial savings going towards the capital markets, banks have managed to gather an incremental deposit of Rs 7.02 lakh crore in the year-to-date (YTD) period ending July 12, 2024. In comparison, the incremental credit extended by the banks amounted to Rs 3.80 lakh crore during the same period. This discrepancy illustrates that while credit growth is substantial, deposit growth remains essential to maintain balance.
Additionally, the report highlighted that banks’ reliance on high-cost deposits, such as Certificates of Deposit (CDs), has more than tripled. This increase is a response to the need to match the rising credit demand, showing how banks are adjusting their funding strategies to accommodate the growing demand for loans.
RBI Governor stated last month, “While bank deposits continue to remain dominant as a percentage of the financial assets owned by the households, their share has been declining, with households increasingly allocating their savings to Mutual Funds, Insurance Funds, and Pension Funds.”
Doubts Revealed
SBI -: SBI stands for State Bank of India. It is one of the largest and oldest banks in India.
Credit Growth -: Credit growth means the increase in the amount of money that banks lend to people and businesses.
Deposits -: Deposits are the money that people keep in their bank accounts for safety and to earn interest.
RBI -: RBI stands for Reserve Bank of India. It is the central bank of India that controls the money supply and interest rates.
Shaktikant Das -: Shaktikant Das is the Governor of the Reserve Bank of India. He is responsible for overseeing the country’s monetary policy.
Mutual Funds -: Mutual funds are a type of investment where many people pool their money together to invest in stocks, bonds, or other assets.
Equities -: Equities are shares of ownership in a company. When you buy equities, you own a part of that company.
Fortnight -: A fortnight is a period of two weeks.
Year-on-year -: Year-on-year means comparing data from one year to the same period in the previous year.
All Scheduled Commercial Banks -: These are banks that are listed in the Second Schedule of the Reserve Bank of India Act, 1934, and they follow certain regulations.
Capital Markets -: Capital markets are places where people buy and sell financial assets like stocks and bonds.
