Credit-deposit growth gap widens to three-year high

While credit growth in the system has picked up, deposit growth has not kept pace, causing a widening of the gap to an over three-year high, and exacerbating concerns that slow deposit growth could emerge as one of the biggest constraints for loan growth in the system.

- SUBRATA PANDA

According to the latest Reserve Bank of India (RBI) data, credit growth in the system for the fortnight ended June 17 was 13.2 per cent and deposit growth was 8.3 per cent - a gap of 490 basis points (bps).

"...our biggest concern is that the gap between deposit growth and loan growth is widening and is at a three-year high. We think deposit growth will be the biggest constraint for loan growth for the system," said Suresh Ganapathy and Param Subramanian of Macquarie Research.

Credit offtake in the system has been quite robust for the past few months due to several factors, including better utilisation of working capital limits by companies; robust growth in housing and consumption loans; and corporations taking the bank route to fund their projects instead of short-term paper because of hardening of rates there. According to the latest credit sectoral deployment data, retail credit grew 16.4 per cent; credit to services sector grew 12.9 per cent; agri portfolio saw 11.8 per cent growth; and industry sector witnessed 8.7 per cent growth.