Significantly the growth in deposits as well as credit was lower than the year ago period reflecting a slowdown in economic activity due to the uncertainty on the economic outlook because of the Lok Sabha elections. Year-on-year credit and deposit growth in the same period of 2023-24 was higher at 16.3 percent and 12.9 percent respectively.
Nonetheless deposit growth continues to lag credit growth, RBI data indicates and this trend has emerged as a major area of regulatory concern. The Reserve Bank of India governor Shaktikanta Das highlighted the need to address persisting gap between credit and deposit growth aat meeting with public sector and private bank CEOs earlier this month.
In his JUne bi-monthly monetary policy statement, governor Shkatikanta Das said that the persisting gap between credit and deposit growth rates warrants a rethink by the Boards of banks to re-strategise their business plans. A prudent balance between assets and liabilities has to be maintained.
The trend has implications for transmission of monetary policy as well. ” The transmission of the repo rate increases undertaken in 2022-23 to banks’ lending and deposit rates continued in 2023- 24 amidst moderation in surplus liquidity in the banking system and credit growth persistently outpacing deposit growth” the governor said in his June statement.
MPC member Ashima Goyal who made a case for rate cuts siad in her minutes that even if there is some initial reduction after a repo cut, rising loan demand and slower deposit growth will tend to raise both loan and deposit rates.
