Indian corporations significantly increased their borrowing from banks in September 2023, with outstanding credit to the private corporate sector growing 14.9% year-on-year. This marks a continuation of the upward trend, as corporate credit growth accelerated from 11.5% in the previous quarter.
The Reserve Bank of India (RBI) attributed the robust growth in corporate borrowing to an improvement in the economic outlook and a revival in investment activity. This is further supported by the fact that loans to the industry sector, which accounts for a significant portion of corporate borrowing, grew by 8.6% in September 2023.
Amidst rising interest rates, depositors shifted their preferences towards term deposits with higher yields. The share of term deposits bearing less than 6% interest rate declined from 85.7% in March 2022 to 16.7% in September 2023. In contrast, the share of term deposits with interest rates between 6% and 8% rose to 78.6% in September 2023, indicating a preference for higher-yielding deposits.
This trend is likely to continue as the RBI maintains its tightening stance to curb inflation. Higher returns on term deposits are expected to further attract deposits, potentially leading to a shift away from current and savings accounts.
Overall, the Indian banking sector is witnessing a shift towards higher-yielding deposits and robust corporate borrowing, reflecting an improving economic climate and a revival in investment activity.
