Deposit Growth Lags Credit Growth: Reveals RBI’s Latest Data

The ongoing disparity between deposit and credit growth in the Indian banking sector has persisted even a year after the merger of HDFC and HDFC Bank. Latest data from the Reserve Bank of India (RBI) indicates that while credit expanded by 14% year-on-year to ₹168 lakh crore as of July 12, deposits grew at a slower pace of 11.3% to ₹211.8 lakh crore during the same period.

This widening gap between credit and deposit growth has raised concerns about the potential liquidity challenges facing the banking system. RBI Governor Shaktikanta Das has highlighted the need for careful monitoring of this trend as it could introduce structural vulnerabilities.

On a fortnightly basis, the situation is even more pronounced, with deposits contracting by 0.5% and credit shrinking by 0.4%. This indicates a short-term preference for investments over deposits.

The surge in credit growth can be attributed to increased economic activity and investment in various sectors. However, the slower pace of deposit growth suggests a shift in investor preferences towards alternative investment avenues.

To address this imbalance, banks may need to adopt strategies to attract deposits, such as offering competitive interest rates and innovative deposit products. Additionally, the government’s role in promoting financial inclusion and encouraging savings habits among the population will be crucial in bridging this gap.

The evolving dynamics of the banking sector, coupled with the ongoing impact of the HDFC-HDFC Bank merger, requires a cautious approach from both banks and regulators in managing liquidity risks and ensuring the stability of the financial system.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.