Mint Explainer: Behind the worst bank deposit crunch in nearly 20 years

livemint.com:

Mint takes a look at how banks performed on the deposit front and why their CD ratio hit a nearly 20-year high. The pace of growth of bank credit surpassed deposit growth in FY24, as per data from the RBI. In FY24, while deposits grew 13.5% to ₹204.8 trillion, non-food credit grew 20.2% to ₹164.1 trillion as on 22 March.

In FY23, deposits grew 9.6% and credit 15.4%. Non-food credit is bank credit after adjusting for loans given to the Food Corporation of India (FCI). Anil Gupta, senior vice-president and co-group head of financial sector ratings at Icra Ltd said that a part of mobilised deposits also is allocated towards regulatory requirements like cash reserve ratio (CRR) and statutory liquidity ratio (SLR).

As a result, the lendable funds left with lenders are lower, resulting in increased competition in deposit mobilisation. SLR is the proportion of deposits that banks have to mandatorily invest in approved securities, while CRR is the percentage of deposits banks need to park with RBI. The credit and deposit growth in FY24 would have declined to 16.3% and 12.9%, respectively, if additions owing to erstwhile mortgage lender Housing Development Finance Corp.

(HDFC) and HDFC Bank’s merger on 1 July were not considered. The merger led to HDFC’s loans and deposits becoming part of the banking system, adding nearly ₹7.2 trillion in loans and ₹1.5 trillion in deposits to the banking system from 1 July. At 80%, the credit-deposit or CD ratio is at its highest since 2005, from when this ratio was available, showed data from RBI.