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Bank Credit Surge: How GST Cuts and Festive Demand Fuel Growth

Bank credit growth has significantly outpaced deposit growth in mid-October. This surge is primarily driven by seasonal festive demand and recent GST rate cuts. Strong retail and MSME activity have further contributed to the credit expansion. The credit-to-deposit ratio has now crossed 80%, indicating tighter liquidity conditions in the banking system.

Key Points: Bank Credit Growth Outpaces Deposits Due to GST Cuts MSME

  • Credit growth reached 11.5% YoY hitting Rs 192.1 lakh crore by mid-October
  • Deposit growth moderated to 9.5% with sequential decline of 1%
  • Strong vehicle financing and corporate interest boosted credit demand
  • CD ratio crossed 80% mark reflecting tighter banking liquidity conditions
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Bank credit growth outpaces deposit growth due to GST cuts, MSME activity: Report

Bank credit growth hits 11.5% YoY, outpacing deposits at 9.5% amid festive demand, GST cuts, and strong MSME activity according to Care Edge Ratings report.

"The credit-to-deposit (CD) ratio increased to 80.4 per cent in the current fortnight, surpassing the 80 per cent mark - Care Edge Ratings"

New Delhi, Nov 4

Bank credit growth outpaced deposit growth in mid-October, driven by seasonal festive demand, GST rate cuts and robust retail and MSME activity, according to a report on Tuesday.

Total credit off-take reached Rs 192.1 lakh crore (as of October 17), marking 11.5 per cent year-on-year increase, matching last year's growth rate, the report from Care Edge Ratings noted.

Additionally, strong vehicle financing during the festive season is expected to boost overall credit growth and growth was driven by interest from corporates due to rising bond yields, the ratings agency said.

Aggregate deposits reached Rs 238.8 lakh crore, reflecting a YoY increase of 9.5 per cent and a sequential decline of 1 per cent, over the previous fortnight, the report mentioned.

"The credit-to-deposit (CD) ratio increased to 80.4 per cent in the current fortnight, surpassing the 80 per cent mark," Care Edge Ratings noted.

"This decline in deposits during the current fortnight was driven by temporary factors, such as festive-season cash withdrawals and an increase in currency in circulation, which rose by around Rs 1 lakh crore YoY," the report said.

The moderation in deposit growth can likely be attributed to the fact that banks are now in the rate-cutting cycle, and investors are turning to alternative avenues.

The short-term weighted average call rate (WACR) increased to 5.53 per cent, up from 5.47 per cent in the previous fortnight, and is now three basis points (bps) above the repo rate of 5.50 per cent, the report noted.

The rise in WACR reflects tighter liquidity conditions in the banking system, driven by increased credit demand, even as the RBI continues to manage liquidity through variable repo rate operations (VRR), it added.

- IANS

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Reader Comments

R
Rohit P
While credit growth is good, the CD ratio crossing 80% is concerning. Banks need to be careful about liquidity management. The RBI should monitor this closely to prevent any systemic risks.
A
Arjun K
Just took a vehicle loan last month for Diwali purchase! The financing options were really attractive. Good to see the data backing up what I experienced firsthand. 🚗
S
Sarah B
As an investor, I'm concerned about the declining deposit growth. With banks cutting rates, where should middle-class Indians park their savings? Mutual funds and stocks seem too risky for conservative investors.
V
Vikram M
The MSME sector is truly the backbone of our economy. Glad to see policies like GST cuts are helping small businesses access credit. This will create more jobs and boost rural economy too.
M
Michael C
The temporary decline in deposits due to festive cash withdrawals makes sense. In India, festivals mean spending - from gifts to celebrations. This pattern repeats every year during Diwali season.

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