Worst Deposit Crunch In 20 Years:
A recently released report revealed that despite robust credit growth, Indian banks faced difficulty in garnering deposits in 2023-24, resulting in the highest credit-deposit ratio in at least two decades.
- Indian banks are grappling with a severe deposit cash crunch that has not been witnessed in the past two decades.
- Currently standing at 80%, the credit-deposit ratio is at its highest since 2015.
- The CD ratio indicates how much of a bank’s deposit base is being utilized for loans.
- A deposit cash crunch occurs when banks have insufficient funds on hand to lend to their customers.
- As a result, businesses face challenges in operating smoothly, and employees may experience delays in receiving their salaries.
- This ripple effect can disrupt economic stability and financial well-being.
- Investors are increasingly pursuing high-return, equity-linked products due to strong market performance and growing financial awareness, presenting banks with the dual challenge of attracting deposits and supporting credit growth.
- A portion of mobilised deposits is also set aside for regulatory requirements such as cash reserve ratio (CRR) and statutory liquidity ratio (SLR), reducing lendable funds and intensifying competition for deposits.
- In recent quarters, banks used their surplus SLR holdings to boost credit growth amid slower deposit growth, but as SLR buffers shrink, they face the challenge of balancing deposit rate hikes with profitability.
- Banks raised deposit rates last fiscal to attract retail deposits amidst rising competition, alternative investment options, and a shift toward real assets.
- The merger of HDFC and HDFC Bank resulted in the incorporation of HDFC’s loans and deposits into the banking system, contributing to the overall figures.
