CASA drives 9.4% YoY moderation in deposit growth even as FDs stay buoyant

Credit growth sustains momentum at 17.4%, but it has come off the peak

Deposit mobilisation in the banking system moderated slightly taking the growth rate to 9.4 per cent year-on-year (YoY) for the fortnight ended December 16, from 9.9 per cent the previous fortnight, latest data by Reserve Bank of India (RBI) showed.

According to RBI data, as of December 16 fortnight, aggregate deposits in the banking system stood at Rs 173.53 trillion compared to Rs 175.24 trillion in the previous fortnight.

“Current account and savings account (CASA) growth moderated whereas term deposits attracted accretions in response to rising interest rates,” RBI said in its Financial Stability Report (FSR) report earlier this week.

Meanwhile, the pick-up in credit demand continues as banking system credit grew 17.4 per cent for the fortnight ended December 16. That said, it has come off the peak of over 18 per cent growth a few fortnights ago.

“Scheduled Commercial Banks’ credit growth, which started picking up during H2FY23, sustained its momentum and gathered pace to touch a decadal high of 17.4 per cent as on December 16, 2022, a level last observed during 2011. The increase has been broad-based across geography, economic sectors, population groups, organisations, type of accounts and bank groups,” RBI said in its FSR report.

Tight liquidity and high credit demand in the system has meant that banks are now scrambling for durable liquidity in the form of term deposits, and have been raising deposit rates to attract more deposits to fund the credit demand in the system.

Meanwhile banks are also drawing down their high-quality liquid assets (HQLA) to fund the credit demand. This is evident from the fact that the liquidity coverage ratio (LCR) has come down from a high of 173 per cent as at September 2020 to 135.6 per cent as of September 2022. Although LCR has come down substantially, it still remains comfortably above the minimum regulatory requirement of 100 per cent.

The gap between credit and deposit growth still remains very high at 800 basis points. However, analysts have said the gap is expected to narrow going into next year as the credit growth may taper due to a combination of factors, including the RBI’s rate hikes, slowing GDP growth, and the normalisation of the base effect.