Deposit growth more than doubled compared to lending in the banking sector

Mumbai, Ta. 26 September 2020, Saturday

In the fortnight ended September 11, deposit growth has more than doubled compared to credit growth in the banking system. According to the Reserve Bank of India, deposits grew by 11.5 per cent year-on-year.

In the fortnight of September 11, bank lending had risen to Rs 104.5 trillion, while deposits had risen to Rs 12.5 trillion. In the fortnight of September 15, 2017, bank lending stood at Rs 2.17 trillion while deposits stood at Rs 13.5 trillion.

The increase in deposits compared to credit growth could be a cause for concern for the banking system. While income through interest is the main source of income for banks, an increase in deposits increases the interest expense of banks.

As a result of the economic downturn caused by Corona, businesses are not only reluctant to take out loans but are also choosing to restructure previous loans.

To increase liquidity in the financial system, the Reserve Bank has recently taken a number of steps, including lowering interest rates. However, there is a picture of industries not coming forward to take loans. Banks, on the other hand, are also moving cautiously in releasing loans, banking sector sources said.

Banks want to ensure that the rise in NPAs, which resulted in a recession in the wake of the 2008 financial crisis, does not happen again.