Data released by the Reserve Bank of India (RBI) show that non-food credit growth in the banking system fell to an over 20-month low of 10.15% year-on-year (y-o-y) during the fortnight ended August 30. In the previous fortnight, the outstanding non-food credit grew by 11.58% y-o-y.
The deposit growth also fell to its lowest level in the last nine fortnights to 9.73% y-o-y in the fortnight ended August 30. In the previous fortnight, the deposit growth was 10.15% y-o-y. Aggregate deposits in the banking system stood at Rs 116.46 lakh crore from Rs 126.80 lakh crore in the previous fortnight, as per the central bank’s data.
The outstanding credit in the banks stood at Rs 96.18 lakh crore, a slight increment from Rs 96.17 lakh crore in the previous fortnight. The credit deposit (CD) ratio for the fortnight fell to 75.25% from the the previous fortnight of 75.84%.
Till July in the current financial year, banks credit to industries has fallen 3%, consumer durables 10.7%, and advances against fixed deposits 21.7%, according to the RBI data. Interest rates on loans were supposed to come down after the 110 basis points (bps) cut by the RBI in its repo rate. But the fresh weighted average lending rates (WALR) saw an uptick of nine basis points month-on-month in July to 9.77%. Weighted average term deposit rate, on the other hand, fell four basis points, as per the RBI data.
The spread on outstanding loans/deposits have improved 13 bps since March, 2019, while the surprising part has been the spread in the incremental book which has improved by 30-40 bps over the same period, a Jefferies report said.
Sumit Kakkar, chief credit officer, Federal Bank, said: “The overall demand slowdown has already been the major factor of the decelerated credit growth. Moreover, the non-banking finance companies (NBFCs), which used to get a big chunk of the banks credit, have now made banks cautious towards them.”
Due to the falling deposit interest rates and term-deposit rates, people are moving to the mutual funds and gold investments, causing the deposit growth slowdown in the banks, analysts said.
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Source: Financial Express