Deposits Outpace Loans: A Surge in Banking Growth in the June Quarter

Deposits Grow Faster than Loans in June Quarter

Mumbai, August 12, 2023: The banking sector in India witnessed a surge in deposits and a moderate growth in loans during the June quarter of 2023-24. According to data released by the Reserve Bank of India (RBI), deposits grew by 9.5%, while loans expanded by 7.6% on a year-on-year basis.

Deposit Growth

Deposits from the public increased by a substantial 9.5% to reach Rs. 177.12 lakh crore during the quarter. This growth was driven by both current account and savings accounts (CASA) and term deposits. CASA deposits grew by 12.5%, while term deposits increased by 7.6%.

The increase in CASA deposits is attributed to factors such as higher interest rates offered by banks, a surge in digital transactions, and the impact of government schemes like Pradhan Mantri Jan Dhan Yojana. Term deposits have also benefited from the prevailing interest rate scenario and the cautious approach adopted by depositors amid economic uncertainty.

Loan Growth

Loan growth remained moderate at 7.6% during the June quarter, marginally higher than the 7.3% growth recorded in the previous quarter. The slowdown in loan growth is primarily due to the cautious lending approach adopted by banks amidst rising interest rates and concerns over asset quality.

The growth in loans was led by retail and corporate segments. Retail loans grew by 11.5%, driven by demand for housing, personal loans, and vehicle loans. Corporate loans increased by 4.1%, supported by the recovery in economic activity and increased capex plans by companies.

Net Interest Margin

The net interest margin (NIM) of banks increased marginally during the quarter. The average NIM for the industry stood at 3.1%, compared to 3.0% in the previous quarter. This improvement in NIM is attributed to higher interest income from loans and investments, as well as a stable cost of funds.

Asset Quality

The asset quality of banks remained stable during the June quarter. The gross non-performing asset (NPA) ratio declined to 4.8% from 5.2% in March 2023. The fall in NPAs is due to the recovery of bad loans, write-offs, and the impact of provisions made by banks.

Outlook

The outlook for the banking sector remains positive, supported by healthy deposit growth and a gradual recovery in loan demand. However, rising interest rates and concerns over asset quality remain key challenges. Banks are likely to adopt a cautious approach while lending, focusing on credit quality and risk management.

Deposit growth is expected to remain robust in the coming months, supported by higher interest rates and the government's push for digital transactions. However, loan growth is likely to moderate further due to rising interest rates and economic headwinds. The asset quality of banks will also be closely monitored, particularly in sectors impacted by the recent economic downturn.

The RBI is expected to remain watchful of the inflation situation and may consider further monetary policy tightening to contain price pressures. This could impact interest rates and the overall growth trajectory of the banking sector.

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