Deposit growth in the banking sector slowed compared to credit withdrawals

Mumbai: In the fortnight ended February 10, there was a growth of 16.10 percent in the credit figure in the country's banking system to Rs 134.17 trillion. The credit growth figure was around nine percent in the same period last year compared to which the current credit growth is significantly higher. In the banking system, deposit growth has been sluggish compared to credit. Despite higher rates, deposits in banks are not seeing the expected increase.

RBI sources said credit withdrawal remained robust due to working capital requirement by corporates in addition to retail demand.

The banking sector is not witnessing the increase in deposits that should be seen against credit withdrawals. The rate of deposit growth in the respective fortnight has been 10.20 percent. Deposit growth in the fortnight of January 27 was 10.50 percent.

Credit withdrawals are expected to slow down in the coming financial year in view of high interest rates.

On the other hand, despite the increase in deposit rates, there is no growth in deposits in banks. The tight liquidity situation is considered to be responsible for the sluggish growth in deposits. Sources also said that there is a gap of 5.90 percent between credit and deposit growth, which can be said to be relatively high.

While banks have been increasing deposit rates for some time now to meet credit growth, the expected growth in deposits has not been seen which will force banks to look to the bond market to generate liquidity, an analyst said.

The Reserve Bank of India has increased the repo rate by 2.50 percent to 6.50 percent since May last year, which is the highest since February 2019.