Deposit growth in banking stable, but credit growth continues to be moderate

With the lockdown, the credit growth remained moderate during the last two fortnights to 6.5 per cent and 6.3 per cent respectively, compared to a year ago level of 12.7 per cent (as of May 24, 2019). RBI announced various measures in the light of COVID-19, one of which is the recent emergency rate cut by 40 bps to 4 per cent.

Deposit growth remained at a similar level of 10.6 per cent (as of May 22, 2020) as compared to the previous fortnight and improved marginally on y-o-y basis (10.1 per cent y-o-y as of May 24, 2020). The liquidity surplus remained more than Rs 4.5 lakh crore in the banking system (during the week ended May 22, 2020).

Demand deposits (which account for the balance 10.5 per cent) declined marginally. Liquidity in the banking system is expected to remain in a surplus position with the growth in bank deposits expected to be higher than the growth in the bank credit off take.

Time deposits that account for 89.5 per cent of aggregate deposits (89.5 per cent share in May-19) grew at a similar pace compared to the previous fortnight while demand deposits (which account for the balance 10.5 per cent) declined marginally.

The share of deposits to overall liabilities remained stable for the fortnight as on May 22, 2020 but increased by 0.7 per cent compared to Mar '20 mainly due to decline in borrowings by banks.

Share of bank credit increased since Sept '19 and stood at 68 per cent of total assets as of May 8, 2020 and May 22, 2020.

The SLR investment remained at similar levels as can be seen in the last two fortnights, and increased as compared to Mar-20. RBI had announced on March 27, a reduction in the CRR (Cash Reserve Ratio) of all banks by 100 bps to 3.0 per cent and had allowed banks to borrow an additional 1 per cent from their SLR investments. This resulted in banks purchasing more government securities owing to risk aversion.