According to data from the Reserve Bank of India (RBI), banks in India faced difficulties in attracting deposits during the 2023-24 fiscal year, despite experiencing stronger credit growth. The credit-deposit ratio, which measures the proportion of a bank’s deposits being utilized for loans, reached its highest level in at least 20 years, standing at 80%. This ratio, available since 2005, indicates the extent to which a bank’s deposit base is being used for lending purposes.
“Data from RBI showed the credit-deposit ratio at its highest in at least 20 years as loan offtake rose across categories including home loans and other loans for consumption,” Livemint reported. The credit-deposit ration shows how much of a bank’s deposit base is being used for loans.
“Customers are chasing high-return, equity linked-products,” Bhavik Hathi, managing director of consulting firm Alvarez and Marsal, told Livemint – and so leaving less money as deposits in banks.
The data from the RBI revealed that the credit-deposit ratio in India peaked at 80%, the highest level recorded since 2005. This ratio represents the percentage of a bank’s deposits that are being utilized for loans. The significant increase in loan offtake across various categories, including home loans and other loans for consumption, contributed to this surge in the credit-deposit ratio.
The pace of growth of bank credit surpassed deposit growth in FY24, the data showed. In FY24, while deposits grew 13.5% to ₹204.8 trillion, non-food credit grew 20.2% to ₹164.1 trillion as on 22 March. In FY23, deposits grew 9.6% and credit 15.4%.
In recent years, a notable trend has emerged in India’s financial landscape, with Indians depositing less money in banks and opting for high return investment options instead. This shift in investment behavior has sparked intrigue and discussion among economists, investors, and financial experts.
One of the primary catalysts behind this shift is the desire for higher returns on investments. While traditional bank deposits offer a sense of security, their returns are often modest. Indians, seeking to maximize their investment potential, are exploring alternative avenues that promise attractive returns. These options include government bonds, debt mutual funds, real estate, gold, and equity markets.
Another factor contributing to this change is the perception that traditional bank deposits yield lower returns compared to other investment options. As financial literacy increases, individuals are becoming more aware of alternative avenues that have the potential to generate higher inflation-adjusted returns over the long term. This awareness has led to a growing interest in investment options that offer a balance between risk and reward, leading to a diversification of investment portfolios.
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