Gap between bank credit growth and deposit growth may narrow in the coming year

9 Dec 2022 , 10:33 AM

Bank credit growth may be continuing to outpace growth in deposits by a long margin-a point that the RBI (Reserve Bank of India) has taken note of- but analysts believe the gap will start to narrow going into the coming next year.

According to the present situation, analysts expect a combination of factors, including the RBI’s rate hikes, slowing GDP growth, and the normalization of the base effect to blunt the sharp growth in credit.

As on November 18, according to the latest RBI data, bank credit growth was at 17.2% yoy while deposit growth was at 9.6%. According to a Macquarie report, the widening gap between loan and deposit growth was at 875 basis points for the fortnight ending November 4, the highest since November, year 2010.

RBI Governor, Shaktikanta Das on a recent MPC meeting said, amid geopolitical tensions, global slowdown and tightening of financial conditions, India’s real GDP growth for 2022-23 is expected to be at 6.8%, with Q3 at 4.4% and Q4 at 4.2%.

According to Das, the outlook for the Indian economy is supported by good progress of Rabi sowing, sustained urban demand, improving rural demand, pickup in manufacturing and rebound in services and robust credit expansion. 

Mixed signals are emanating from geopolitical situations and financial market volatility.  “Consumer price inflation moderated to 6.8% yoy in October month as expected but still it remains above the upper tolerance level of the RBI.

Core inflation is exhibiting stickiness, while headline inflation may ease throughout the rest of the year and in the first quarter of FY 24. It is expected to rule above the target,” Das stated.

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