Deposit growth has limited gains

Growth in deposits is picking up pace. The Reserve Bank of India’s (RBI) latest data for the fortnight ending 2 June shows that industry deposits growth stood at 11.8% year-on-year (y-o-y).

- Bavadharini KS

This is a meaningful improvement from the 8.2% growth seen in November which marked the lowest growth in the past few months. RBI’s withdrawal of ₹2,000 denominated currency notes could have partly aided deposit growth lately. In fact, absolute deposit growth over the last one year has surpassed credit growth by ₹1 trillion.

While credit growth continues to outpace deposit growth, the gap between the two has been narrowing in the past few quarters. According to RBI’s latest data, credit growth was up 15.4% y-o-y, a moderation from as high as nearly 18% growth seen in October.

Note that deposit rates are repriced with a lag versus the pace at which loan rates get repriced. This is why deposit growth has been slower than credit growth, leading to Indian banks reporting stellar net interest margins (NIMs) in FY23.