Credit-deposit ratios of banks spark debate: Is there a cause for worry?

Though increased lending generally leads to more deposits through the credit multiplier effect, reduced liquidity has led to shrinking deposit pools

The slowing growth in bank deposits, compared to credit, in recent times has raised concerns with both the government and the regulator — the Reserve Bank of India (RBI) — flagging the issue. However, many believe that it is not a systemic concern but may be specific to individual banks since every credit creates its own deposit.  

The annual growth in bank credit, at 13.7 per cent, outpaced the 10.6 per cent increase in deposits as of July 26, according to RBI data. The credit-deposit ratio for all scheduled commercial banks (SCBs) increased from 78.3 per cent in