Bank deposits India: Faster loan growth rate over deposits could spur rise in FD rates: Report

Bank deposit rates in India are likely to see an increase soon as growth in bank credit outpaced the increase in deposits in the first five months of the current financial year, TOI said in a report. Banks’ weighted average term deposit rates saw an uptick of 27 basis points in April-August 2023.

RBI data shows that bank deposits saw a rise of 6.6 per cent in the first five months, even as bank credit saw a growth of 9.1 per cent to Rs 124.5 lakh crore. The merger of HDFC with HDFC Bank widened the credit-deposit gap, which is factored in in the above figures.

While banks added Rs 11.9 lakh crore of deposits, their loan books have grown by Rs 12.4 lakh crore. The wedge between credit and deposit growth has been managed because of surplus investments by banks in government securities, the report says.

The weighted average term deposit rate of banks has risen from 6.28% in April to 6.55% in July 2023.
This difference between the credit and deposit growth is also reflected in the liquidity in money markets. “It is not surprising that the cost of deposits did increase in July based on RBI data, which would have persisted in August, too,” said Madan Sabnavis, Chief Economist at Bank of Baroda.According to CareEdge Ratings, credit growth for the current financial year is expected to be 13-13.5%, excluding the impact of the HDFC merger. The rating agency said banks will shore up branch networks to ensure deposit growth does not constrain credit offtake.Deposit growth in banks, as on fortnight-ended August 11, reached a six-year high of 13.5 per cent. CareEdge Ratings said it is the first time since 2017 that the deposit growth has crossed 12.5 per cent.Credit growth increased 19.7 per cent during the fortnight, driven by the merger between HDFC and HDFC Bank, the report said, adding that it would have been 14.8 per cent if not for the USD 40 billion-amalgamation.

The scrapping of Rs 2,000 denomination notes and their subsequent depositing had helped banks with deposits, but it has dropped sequentially, the ratings agency said.

It said the outlook for bank credit offtake remains positive, supported by factors such as economic expansion, increased capital expenditure, implementation of the Production-Linked Incentive (PLI) scheme, and a push for retail credit.