Banks' Credit-To-Deposit Ratio Hits Highest Level In A Decade, Says CareEdge Ratings
The ratings agency said that the HDFC merger has been the primary reason of this growth.
Credit-deposit ratio of banks increased 38 basis points and stood at 80.3% for the fortnight of March 22, touching a decade high, according to CareEdge Ratings.
In a report dated April 8, the ratings agency said that the HDFC merger has been the primary reason of this growth. In fact, the CD ratio has been hovering around 80% since September 2023.
However, if we exclude the merger's impact, the CD ratio for the present fortnight would be at 78.1%, up 230 bps when compared to 75.8% on March 24, it said.
The agency projected CD ratio to remain elevated at above 81% in FY25, as credit offtake moderates but remains higher than deposit growth.
Personal Loans Drive Credit Growth
For the fortnight ended March 22, credit offtake increased 20.2% year-on-year, which includes the impact of the merger of HDFC Bank with Housing Development Finance Corp., according to CareEdge.
In absolute terms, in the last 12 months, credit offtake increased by Rs 27.6 lakh crore to reach Rs 164.3 lakh crore for the fortnight under review. The growth was primarily driven by personal loans, whose demand continues to remain strong, it said.
Despite Reserve Bank of India's guidelines on credit risk weights, the personal loans segment became the largest one and the industrial sector's growth slowed.
The ratings agency added that medium-term outlook for credit growth looked promising on the back of personal loans and expected increase in capex spending.
It expects credit growth to be in the range of 14-14.5% at the end of FY25, but cautions against elevated interest rates and macro-uncertainties.
Deposits Grow But Lag Credit Growth
Despite deposits showing improved signs of growth, credit growth continues to outperform.
For the fortnight under review, deposits increased 13.5% year-on-year, including the impact of the merger, the report stated. However, without the impact, they rose 12.9% year-on-year.
In absolute terms, over the last 12 months, deposits grew but slower than credit offtake, expanding by Rs 24.3 lakh crore.
"Deposit growth although improving has lagged credit growth for FY24 and consequently is anticipated to play a leading role in FY25 as banks take further efforts to shore up their liability franchise and ensure that lagging deposit growth does not constrain the credit offtake," CareEdge Ratings said.
It expects deposit growth to be in the range of 13-13.5% during FY25.
With continued deposit rush among Indian banks, the war is only expected to get more intense due to rising structural risks and high loan-to-deposit ratio issues, Emkay Global, too, had said in its March 21 report.
In fact, as the Indian banking sector rides retail credit growth, the biggest challenge could be raising them at a reasonable cost.
