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Credit Growth Soars, Banks Scramble for Deposits
4 Jul
Summary
- Bank lending outpaced deposit growth in the June quarter.
- Corporate demand and retail loans, especially gold loans, drive credit.
- FCNR(B) deposits may offer limited relief to banks' funding challenges.
Bank lending has continued to outpace deposit growth in the June quarter, creating a significant funding gap for financial institutions. Credit growth demonstrated resilience, with year-on-year figures ranging from 12.9% to 21.3% for most large and mid-sized banks, and even higher for smaller banks.
This accelerated lending pace is attributed to robust demand from corporations seeking bank borrowings amidst rising bond yields and elevated costs for external commercial borrowings. Additionally, growth in the retail segment, particularly gold loans, has significantly supported loan expansion.
To address the deposit mobilization challenge, the Reserve Bank of India's recent window for Foreign Currency Non-Resident (Bank) deposits is expected to offer some relief. However, experts suggest the benefits might be limited in the initial quarter, with potential long-term impacts on the cost of funds.
Analysts anticipate a gradual normalization in credit demand as supply-side pressures ease and corporate bond markets become more stable. Overall system credit growth for FY27 is projected to settle around 13%, moderating from the stronger provisional numbers of the first quarter.
