SBI report calls deposit growth concern a myth as the banking sector registered the highest absolute growth in both deposits and credit growth since 1951-52
The State Bank of India (SBI) stated in its latest report that the Reserve Bank of India's (RBI) concern regarding slow deposit growth is nothing but a statistical myth. The report highlighted that although credit growth surpasses deposit growth, it is doubtful whether this is a sign of slowing deposit growth.
Additionally, Union Finance Minister Nirmala Sitharaman advised public service banks (PSBs) to conduct special drives to increase deposits during the meeting with the Ministry on August 19.
“The myth of a flagging deposit growth appears as just a statistical myth with credit growth outpacing deposit growth being tom-tommed as a deceleration in deposit growth...Incremental deposit growth at Rs 61 trillion has outpaced incremental credit growth at Rs 59 trillion since FY22...what is thus important is the pricing of deposits and not the quantum...,” said the SBI report.
The report stated that deposit growth has been higher than credit growth since FY22. Incremental deposit growth was Rs 61 trillion, while incremental credit growth was Rs 59 trillion since FY22. However, the banking sector experienced a decrease in its current account savings account (CASA) deposit growth, with CASA declining from 43.5% in FY23 to 41.0% in FY24.
As highlighted in the report, in FY23, the banking sector, especially the All Scheduled Commercial Banks (ASCBs), registered the highest absolute surge in deposits and credit since FY 1951-52.
Additionally, the report also stated that in the past, there have been instances where credit and deposit growth diverged for two to four years and it further predicted a rate reversal cycle by the end of 2025.
Quoting RBI study, SBI economists said, "We are in the 26th month of credit and deposit divergence as of June 24….going by past data.. taking the outer limit….the end of the divergence cycle could be June 2025 –October 2025. Beyond such time, deposit growth could inch up and credit growth significantly decelerating…this would also mean a rate reversal cycle."