Bank deposits, credit shrink in fortnight to September 15
Outstanding bank deposits and advances, which are loans provided by banks, both saw a significant contraction during the fortnight ending September 15. Deposits fell by a substantial ₹2.49 lakh crore. This decline is largely attributed to the maturity of high-cost bulk deposits, which are large-value deposits usually made by institutions or high-net-worth individuals, which banks often use for short-term funding. Consequently, deposit growth slowed to 17.3%, and credit growth also dropped to 18.1%. The Reserve Bank of India's data indicates a net withdrawal from cumulative outstanding deposits, reflecting a period of liquidity adjustment for banks.
What this means
A sharp drop in deposits, especially from maturing bulk deposits, can tighten liquidity for banks and potentially push up funding costs if they need to replace these funds. Slower credit growth, even if temporary, warrants attention as it can signal softening demand or banks becoming more cautious. It hints at banks adjusting their liability structure after attracting higher-cost deposits.
Most affected: Indian commercial banks, Treasury operations
Key takeaway: Banks must manage their deposit mix, balancing the cost of bulk deposits with stable, lower-cost retail funds to sustain credit growth without excessive funding pressures.
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