SBI Research Dismisses Bank Deposit Fears

19 Aug 2024 , 02:47 PM

As Finance Minister Nirmala Sitharaman attends a review meeting with the heads of Public industry Banks and Regional Rural Banks on Monday, the State Bank of India (SBI) stated in its most recent report that the assumption that deposit growth in the banking industry is slowing is simply a statistical fallacy.

However, the report stated that, while credit growth has outperformed deposit growth in recent years, prompting some to interpret this as a sign of slowing deposit activity, a closer look reveals a different tale.

The research stated that in FY23, the banking sector, specifically All Scheduled Commercial Banks (ASCBs), experienced the fastest absolute growth in both deposits and credit since 1951-52.

Deposits increased by an amazing Rs 15.7 lakh crore, while credit expanded by Rs 17.8 lakh crore, bringing the incremental Credit-Deposit (CD) Ratio to a staggering 113%. The momentum continued into FY24, with deposits increasing by Rs 24.3 lakh crore and credit by Rs 27.5 lakh crore.

Despite the narrative implying a decrease in deposit growth, the facts indicates otherwise. Since FY22, incremental deposit growth has surpassed incremental credit growth, with deposits growing by Rs 61 trillion vs Rs 59 trillion in credit.

“Decadal Deposits have expanded by a sharp 2.75 times, but Decadal credit expanded by 2.8 times since FY22, deposits expanded Rs 61 trillion vis-a-vis credit expansion at Rs 59 trillion,” according to the analysis.

According to the research, the major issue here is not the size of the deposits, but their cost. Historical trends indicate that credit and deposit growth differ over 2 to 4 years.

“The myth of a flagging deposit growth appears as just a statistical myth with credit growth outpacing deposit growth being tom-tommed as a deceleration in deposit growth” according to the paper.

According to a Reserve Bank of India (RBI) analysis, we are in the 26th month of this divergence as of June 2024, with the cycle expected to terminate between June and October 2025.

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