RBI Data: Credit Growth Outstrips Deposits Despite Slowdown

Quick Summary

• Credit growth in India has outpaced deposit growth despite both slowing down.
• as of February 21,bank deposits were Rs 222 lakh crore,growing by 10.3% year-on-year (y-o-y), while bank credit was Rs 179.9 lakh crore, with an 11% y-o-y increase.
• The credit-deposit ratio increased to 79.1% as deposit growth lagged behind credit offtake.
• Lending to non-bank financial companies (nbfcs) saw a reduction from 15.6% in January 2023 to 7.7% in January 2024.
• Retail loan growth slowed to an increase of only half the previous year’s pace at a rate of 11.8% y-o-y as of January 2024 compared to the previous year’s figure of around 28.6%.
• Tightening lending norms since November have affected segments like unsecured retail loans and microfinance lending, impacting overall credit growth.
• ICRA has revised its credit growth estimate downward for FY25 to between 10.5%-11%.

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Indian Opinion Analysis

The recent data highlighting that India’s credit growth continues to outpace deposit expansion suggests a nuanced economic environment where banks are extending more loans relative to deposits received. This trend can indicate robust economic activity but also carries potential risks such as liquidity pressures on banks if not managed prudently.

The slowdown in retail loans and NBFC lending reflects tighter regulatory measures affecting segments like unsecured debts and microfinance—strategies likely aimed at enhancing financial stability amid rising global uncertainties.

ICRA’s revised projections indicate caution about future economic conditions given recent moderations and suggest that the banking sector must balance aggressive lending with lasting practices.Read More