Banks’ CD dependence to continue as deposit growth lags amid tight liquidity, ET BFSI
Credit growth is predicted to stay reasonable within the coming months as a result of a excessive base impact and regulatory measures aimed toward managing liquidity. As of March 7, 2025, credit score offtake stood at Rs 181.3 lakh crore, reflecting an 11.1 p.c year-on-year (y-o-y) enhance, slower than the 12.1 p.c progress recorded final 12 months, excluding the impression of mergers. The tempo of credit score enlargement has softened amid issues over an elevated credit-to-deposit (CD) ratio and tighter liquidity conditions.
Deposit growth, which lagged credit score progress, rose 10.2 p.c y-o-y to Rs 225.1 lakh crore by March 7, 2025, decrease than the ten.5 p.c progress recorded within the earlier 12 months. Regardless of banks providing greater term deposit rates and tapping the market by means of certificates of deposit (CDs), deposit mobilisation remained sluggish. The issuance of CDs surged 34 p.c y-o-y, reaching a file Rs 10.58 lakh crore in FY25 (as much as March 7), whereas business paper issuances grew 13.5 p.c to Rs 13.90 lakh crore throughout the identical interval.
“In FY25, banks have intensified their efforts to reinforce their legal responsibility franchises by providing greater charges on time period deposits. Moreover, banks are sourcing funds by means of certificates of deposit, albeit at the next price. Moreover, a liquidity deficit within the banking system has hampered deposit progress,” CareEdge Ratings mentioned in a report.
YES Financial institution MD & CEO Prashant Kumar makes a case for rethinking Credit score-Deposit ratio as a efficiency metric for banks, arguing that credit score demand could be met by way of borrowings, particularly after the introduction of LCR & NSFR norms. Additionally, including how deposits solely are unreliable to satisfy the credit score demand of an financial system that goals to change into ‘Viksit Bharat’ by 2047. Kumar outlines YES Financial institution’s progress imaginative and prescient by FY30, company capex traits, the subsequent RBI price lower, and extra. Learn right here:
CD ratio elevatedThe CD ratio, though barely decrease by 19 foundation factors over the earlier fortnight, stays elevated at 80.5 p.c, reflecting a mismatch between credit score and deposit progress. Liquidity situations are anticipated to stay tight, which can hold the CD ratio excessive within the close to time period.
Banks are prone to proceed specializing in strengthening their legal responsibility franchises and sourcing funds by means of higher-cost devices similar to CDs to handle funding requirements. The short-term Weighted Common Name Charge (WACR) declined to six.25 p.c as of March 7, 2025, down from 6.52 p.c a 12 months in the past, suggesting some easing in short-term charges. Nonetheless, with liquidity deficits persisting, deposit progress is unlikely to outpace credit score progress considerably within the close to future.
