Mumbai, Mar 12 (PTI) With deposit growth lagging far behind the credit demand, leading to a liquidity deficit in the system, banks are forced to raise nearly record amounts of funds by issuing certificates of deposits and commercial papers, according to a report.
For the fortnight ending February 23, credit offtake soared to 20.5 per cent year-on-year to reach Rs 162.1 lakh crore, driven by personal and other unsecured loans. On the other hand, deposit growth, which has been lagging the former for almost two years now, has grown only by 13.1 per cent year-on-year during the fortnight to Rs 202 lakh crore.
Both numbers are higher than the same period of the previous year, simply because of the merger of the HDFC twins on July 1, 2023.
Excluding the merger impact, credit growth is 16.5 per cent, just 100 bps higher than the year-ago period when it was 15.5 per cent. In a similar manner, deposit growth would have been 12.5 per cent, which is flat, Sanjay Agarwal, a senior director with Care Ratings said in a note Tuesday.
He expects credit and deposit growth rates to improve going forward as banks look to shore up their liability franchise and ensure that deposit growth does not constrain credit offtake.
Given this background, banks have been issuing near-record CDs (certificates of deposits) and commercial papers (CPs). As of February 23, CDs outstanding stood at Rs 3,81,400 crore, which is an annualised growth of 36.1 per cent. This is the highest CD issuance since May 20, 2020, according to the agency.
On the other hand, the outstanding CPs stood at Rs 4,08,000 crore as of February 29 — 11.9 per cent more than the year-ago period and much higher than Rs 3,78,600 crore as of January 15, 2024. However, on an annualised basis, it was -0.7 per cent. In recent times, CP issuance peaked on May 31, 2023, when the outstanding stood at Rs 4,33,500 crore.
According to Agarwal, banks are resorting to these short-term funds as the short-term weighted average call money rate has been on an upward spiral, touching 6.61 per cent as of March 01, 2024, compared to 6.47 per cent as of March 3, 2023, due to liquidity and pressure on short-term rates.
When it comes to credit growth, in absolute terms, over the past 12 months, credit offtake expanded by Rs 27.6 lakh crore to reach Rs 162 lakh crore as of February 23, while deposits expanded by Rs 23.7 lakh crore to reach Rs 202 lakh crore as of February 23, 2024.
This has the credit-to-deposit ratio or the CD ratio, hovering around 80 per cent since September 2023. For the reporting week of February 23, the CD ratio saw an uptick of 26 bps, compared to the previous fortnight, and stood at 80.2 per cent for the fortnight.
Again the HDFC merger is mainly driving this growth too. If we excluded the merger impact, the CD ratio for the current fortnight stood at 78 per cent compared to 75.3 per cent a year ago. PTI BEN BAL BAL
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