Credit offtake continued to grow albeit at a slower pace, increasing by 17.3% year-on-year (y-o-y) to reach Rs 168.8 lakh crore, for the fortnight ending June 28, 2024. The impact of HDFC’s merger with HDFC Bank (which would subside by the end of Q1FY25) along with growth in personal loans continues to account for this growth. If we exclude the impact of the merger, credit grew at 13.8% y-o-y for the fortnight compared to last year’s growth of 16.2%. “The slowdown can be attributed to a drop in credit demand, RBI measures like higher risk weights on unsecured loans, and a higher base effect. However, the outlook for bank credit offtake continues to remain positive,” according to CareEdge Ratings.Deposits grew by 11.1% y-o-y for the fortnight (including the merger impact) and reached Rs. 212.9 lakh crore as of June 28, 2024, driven by growth in time deposits. Excluding the merger impact, growth stood at 8.7%. Sequentially deposits increased by 1.8%.
The Short-term Weighted Average Call Rate (WACR) stood at 6.50% as of July 5, 2024, compared to 6.44% on July 7, 2023.
The prospects
The medium-term prospects look promising with sustained personal loans along with the anticipated increase in capex spending, especially in the private sector. CareEdge estimates the credit growth to be in the range of 14%-14.5% during FY25. Further ebbing inflation could also reduce the working capital demand. The effect of the HDFC merger would dissipate by the end of Q1FY25. However, elevated interest rates and global uncertainties could adversely impact credit growth.
Deposits rose at 11.1% y-o-y for the fortnight (reported June 28, 2024), and sequentially witnessed an increase of 1.8%. Without considering the merger, growth came in at 8.7% compared to 11.8% last year.
Meanwhile, in absolute terms, deposits expanded by Rs. 26.0 lakh crore over the last 12 months and reached Rs. 212.9 lakh crore as of June 28, 2024.
Deposit growth, though showing improvement, has continuously lagged credit growth in the past year. It is expected to be prominent in FY25 as banks intensify efforts to strengthen their liability franchise. This focus aims to prevent constraints on credit uptake due to deposit growth. CareEdge estimates deposit growth to range between 13% and 13.5% during FY25.
CD ratio
The CD ratio has been generally around 80% since September 2023. Of late, however, the same has been trending downwards. The CD ratio saw a decline of 63 bps, compared to the previous fortnight, and stood at 79.3% for the fortnight (June 28, 2024). The HDFC merger mainly drives this growth. If we exclude the merger impact, the CD ratio for the current fortnight stood at 77.3% compared to 75.1% on June 28, 2023. Of late, the growth in deposits has generally been higher than the credit growth, indicating a disproportionate focus of the banking system on raising resources.
The credit to total assets ratio witnessed an uptick of approximately. 31 bps compared to the previous fortnight and stood at 68.9% for the fortnight (June 28, 2024). The Government Investment to Total Assets Ratio declined by 40 bps and stood at 25.42. Meanwhile, overall government investments stood at Rs 61.8 lakh crore as of June 28, 2024, reporting a growth of 8.7% y-o-y, and declined by 1.0% sequentially.
