Incremental Credit-Deposit ratio of Scheduled Banks’ declined in the financial year so far

Scheduled banks’ increased credit deposit (CD) ratio has declined in the fiscal year so far, with the accumulation of additional deposits at twice the credit disbursement.

The increased CD percentage from the end of March to June 2, 2023 decreased to 50.24 percent, compared to 95.17 percent in the same period last year (end of March to June 3, 2022).

CD ratio conveys how much every rupee of deposit goes towards the credit markets. A high growth in this ratio indicates that credit growth is rising rapidly, which may lead to excessive risk and leverage on the part of the borrower.

In the case of banks, this can mean that there will be a rise in non-performing assets when the economic cycle reverses. This ratio serves as a useful measure for understanding systemic risks in the economy,” according to the Reserve Bank of India.

deposit accumulation

Deposit backlog of scheduled banks at ₹6,65,238 crore in the financial year to date was approximately 2.5 times that of the backlog for the previous year period (from ₹2,63,819 crore)

The strong deposit build-up comes on the back of higher interest rates offered by banks on (time) deposits and $2,000 notes being returned to banks by the public as the Reserve Bank of India (RBI) is withdrawing them from circulation as these notes are not commonly used. for transactions and according to the ‘Clean Notes Policy’.

credit disbursement

Credit disbursement by scheduled banks at ₹3,34,272 crore in the financial year to date was about 1.33 times the disbursement of the previous year period (of INR 2,51,099 crore).

Banks appear to be experiencing relatively healthy credit growth in sectors such as services, personal loans, agriculture and allied activities and large industry, according to the RBI’s publication of bank credit data in April 2023.

“The credit (lending) to deposit ratio reveals the role of banks in ‘enhancing productive sectors and contributing to economic growth’” (RBI, Report on Trends and Progress in Banking) in India 2003-04: 63), thus a higher CD ratio means greater credit routing to banks.

The Certificate of Deposit ratio indicates the amount of bank credit in relation to deposits. The CD percentage can vary depending on the monetary policies. If the CD ratio remains unchanged, this means that credit expansion has kept pace with deposit mobilization.

CARE Ratings noted, in a note, that demand for credit was lower at the start of the fiscal year, and thus pressures on deposit rates eased. The rise in rates appears to have been halted for the time being, at the end of May.

“The path of rates on the deposit side will be shaped by the pace of credit cuts; hence, we need to monitor price action over the coming months to conclude whether rates have peaked or if further increases continue,” according to the note.