Incremental credit-to-deposit ratio drops to 30 month low of 77.7%
loan-to-deposit ratio (LDR) moderating to 77.7% in October the lowest in the last 30 months, said a report by Motilal Oswal. Outstanding LDR was at 79%. Analysts say that the gap between credit and deposit growth will narrow down to less than 100 basis points over coming months versus 350 basis points seen presently.
«While the gap between deposit and credit growth has narrowed from the peak of 8.8% in November 2022 to 3.5% currently, the high incremental LDR and continued regulatory watch on both LDR and liquidity coverage ratios (LCR) will drive further moderation in loan growth,» said Nitin Aggarwal, Institutional Research – Head BFSI, Motilal Oswal Securities. «We estimate the differential between credit and deposit growth to narrow down to less than 100 basis points over the year.»
The LDR assesses a bank's liquidity by comparing total loans to total deposits, with a high LDR indicating potential liquidity issues. Indian banks' deposit growth has largely remained slow as savings are moving towards alternative avenues like mutual funds, equity investments, and real estate.
For the large part of the year banks' loan-to-deposit ratio has stayed above 80%, a number that the Reserve Bank of India is not comfortable with as these institutions are also required to hold 18% of liabilities in government securities and maintain 4.5% as cash reserves.
«Despite regulatory efforts to reduce the high credit-deposit (CD) ratio, banks have continued to grow credit even as deposit growth has slowed,» Aggarwal said. «The
