A credit boom that raised concerns is now cooling

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Subscribe to enjoy similar stories. Mumbai: Credit growth that leapt far ahead of deposit growth has slowed, narrowing the gap between the two, as regulatory measures take effect and banks dial down a loan frenzy. The difference between non-food credit and deposit growth shrank from 311 basis points on 26 July to 275 bps on 23 August, latest data from the Reserve Bank of India (RBI) showed.

While credit growth stood at 13.6% year-on-year on 23 August, deposits grew 10.8% in the same period. Experts said RBI measures such as higher outflow rates on retail deposits – requiring banks to set aside more liquid assets to account for sudden increase in retail deposit outflows– and higher risk weights for certain loan segments will continue to slow credit growth during the rest of the financial year. “While credit growth will remain slightly higher than credit growth, we expect the gap between the two to narrow down, driven by a slowing-down of credit growth," saidAnil Gupta, senior vice-president and co-group head of financial sector ratings, Icra Ltd.

“Slower growth in credit is aligned with the regulatory objective to address the potential liquidity issue which may arise in the banking system if the gap continues to persist," Gupta added. Credit growth overshooting deposit growth had worried banks and the regulator alike. RBI governor Shaktikanta Das said in July that while there will always be some gap between the two, credit growth should not “run ahead of deposit growth by miles".