Indian banks are battling the worst deposit crunch in 20 years

livemint.com:

MUMBAI : Banks in India struggled to attract deposits in 2023-24 even as credit growth turned stronger. Data from RBI showed the credit-deposit ratio at its highest in at least 20 years as loan offtake rose across categories including home loans and other loans for consumption. At 80%, the credit-deposit or CD ratio is at its highest since 2005, from when this ratio is available, showed data from RBI.

The CD ratio indicates how much of a bank’s deposit base is being utilized for loans. The FY24 data is up to 22 March, the last fortnight for the previous financial year. “Customers are chasing high-return, equity linked-products," said Bhavik Hathi, managing director of consulting firm Alvarez and Marsal, adding that the solid performance of equity markets in the past few months and rising financial literacy have encouraged investors to put in money into such securities for higher returns.

Banks hiked deposit rates last financial year to draw in retail deposits, as they faced increased competition from peers, other investment avenues, and some shift in preferences from financial assets towards real assets. The next set of data on credit and deposit is expected to be released for the fortnight ending 5 April. To be sure, Mint used the aggregate bank credit data and not just the non-food data — bank credit after adjusting for loans given to the Food Corporation of India (FCI) — to calculate the CD ratio.