Bank credit growth outpaces deposit growth due to GST cuts, MSME activity: Report

New Delhi, Nov 4 Bank credit growth outpaced deposit growth in mid-October, driven by seasonal festive demand, GST rate cuts and robust retail and MSME activity, according to a report on Tuesday.

Total credit off-take reached Rs 192.1 lakh crore (as of October 17), marking 11.5 per cent year-on-year increase, matching last year's growth rate, the report from Care Edge Ratings noted.

Additionally, strong vehicle financing during the festive season is expected to boost overall credit growth and growth was driven by interest from corporates due to rising bond yields, the ratings agency said.

Aggregate deposits reached Rs 238.8 lakh crore, reflecting a YoY increase of 9.5 per cent and a sequential decline of 1 per cent, over the previous fortnight, the report mentioned.

“The credit-to-deposit (CD) ratio increased to 80.4 per cent in the current fortnight, surpassing the 80 per cent mark,” Care Edge Ratings noted.

"This decline in deposits during the current fortnight was driven by temporary factors, such as festive-season cash withdrawals and an increase in currency in circulation, which rose by around Rs 1 lakh crore YoY," the report said.

The moderation in deposit growth can likely be attributed to the fact that banks are now in the rate-cutting cycle, and investors are turning to alternative avenues.

The short-term weighted average call rate (WACR) increased to 5.53 per cent, up from 5.47 per cent in the previous fortnight, and is now three basis points (bps) above the repo rate of 5.50 per cent, the report noted.

The rise in WACR reflects tighter liquidity conditions in the banking system, driven by increased credit demand, even as the RBI continues to manage liquidity through variable repo rate operations (VRR), it added.

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