data from reserve Bank of India ,reserve Bank of India) showed that the investment to deposit ratio is now closer to 29% compared to the recent peak of 30% recorded in August, indicating that banks have started shifting their deposits to higher-yielding loans as Credit demand has picked up.
The investment and deposit ratio shows the amount of deposits that are used by banks primarily as investments for loans. As credit growth picked up, banks began to use up their deposits faster. Credit growth is currently at an almost decade high of 18%; However, deposit growth is roughly half of that at close to 10%. As a result, banks have increased deposit rates by 30 to 50 basis points. One basis point is 0.01 percentage point.
However, banks are cautious about their deposit hunt and are being finicky about the period in which they are offering higher rates.
Bank of Baroda For example, BoB CEO Sanjiv Chadha has been cautioning against a broad-based rise in deposit rates and has expressed confidence that deposit and credit growth will converge.
BOB’s senior colleague, State Bank Of India It has also been conservative in going after deposits. Chairman Dinesh Khara said the bank has enough liquidity without a hike in deposit rates.
Like its peers, SBI’s deposit growth at 10% lagged behind 20% growth in advances. Khara, however, said that on a gross basis, the bank has sufficient liquidity to be able to fund strong credit growth.
“We have `40 lakh crore deposits and `30 lakh crore advances. We also have `3.85 lakh crore additional investments which can be liquidated for credit growth,” he said.
ICICI Securities A note after the India Financial Conference said banks are focusing on expanding their expanding deposit base as credit growth is growing faster than deposits.
“Corporate pricing is improving with higher credit offtake and drawdown of surplus liquidity. Working capital is stable and some capex-based demand is driving incremental growth. Incremental NIMs are getting better with the passage of rate hikes. Still, focus on acceleration. The granular deposit engine will put pressure on deposit costs,” ICICI Securities said.