Banks' Deposit Growth Races Ahead: Is Your Money Safe or Earning Less?

Author

Akshat Lakshkar | Whalesbook News Team

Detailed Coverage:

Recent data from the Reserve Bank of India reveals the state of bank credit and deposit growth as of October 31. Annual credit growth for banks stood at 11.3%, while deposit growth was recorded at 9.7%. This indicates a narrowing gap between the two, which reduced to 160 basis points compared to 200 basis points observed on October 17. For context, a year ago, this gap was only 10 basis points, with credit growing at 11.8% and deposits at 11.7%.

The data also highlights a significant increase in demand deposits, which include low-cost current and savings accounts, by 21% year-on-year. This surge to Rs 31 lakh crore is a positive sign for banks as it reduces their cost of funds. In contrast, time deposits, commonly known as fixed deposits, saw a growth of 8.3%, reaching Rs 211 lakh crore.

Impact This trend is significant for the banking sector as it shows an increased reliance on cheaper funding sources (demand deposits) for lending, potentially improving net interest margins. It suggests robust liquidity in the system and potentially a cautious approach by depositors towards locking funds in longer-term fixed deposits. This could influence lending rates and the overall profitability of banks. Rating: 7/10.

Difficult Terms Explained: Basis Points: A basis point is one-hundredth of a percentage point. 100 basis points equal 1%. Demand Deposits: These are funds held in bank accounts that can be withdrawn by the depositor at any time without prior notice. They include current accounts and savings accounts. Time Deposits: These are deposits held in a bank for a fixed period, commonly known as fixed deposits or term deposits. They typically offer higher interest rates than demand deposits but have withdrawal restrictions.