Deposit growth although improving has lagged credit growth for FY24 and consequently is anticipated to play a leading role in FY25 as banks take further efforts to shore up their liability franchise and ensure that lagging deposit growth does not constrain the credit offtake. Further with rate cuts anticipated in the later part of FY25, some amounts might flow back into the banking system thereby improving the CASA ratios to a certain extent. Hence, the deposit growth to be in the range of 13%-13.5% during FY25, according to CareEdge estimates.
Credit growth
Credit offtake continued to grow, increasing by 19.9% year-on-year (y-o-y) to reach Rs. 166.0 lakh crore, for the fortnight ending April 5, 2024. This rise can continue to be attributed to the impact of HDFC’s merger with HDFC Bank along with the growth in personal loans. If we exclude the impact of the merger, credit grew at 16.1% y-o-y for the fortnight compared to last year’s growth of 15.7%. Sequentially credit grew by 1.0%. Meanwhile, the outlook for bank credit offtake continues to remain positive.
Deposits too grew by 13.8% y-o-y for the fortnight (including the merger impact) and reached Rs. 210.0 lakh crore as on April 5, 2024, driven by growth in demand deposits. Excluding the merger impact, growth stood at 13.2%. Sequentially deposits saw a robust growth of 2.6%. Deposit growth is expected to improve compared to earlier periods as banks shore up their liability franchise and ensure that deposit growth does not constrain credit offtake.
The medium-term prospects look promising with sustained personal loans along with the anticipated increase in capex spending especially in the private sector. Additionally, given that in FY24, credit offtake is anticipated to close with a growth of around 16% excluding the merger, it would be working off a higher base. CareEdge estimates the credit growth to be in the range of 14%-14.5% at FY25 end. 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.
CD ratio
The CD ratio has been generally hovering around 80% since September 2023. The CD ratio saw a downtick of 120 bps, compared to the previous fortnight, and stood at 79.1% for the fortnight (April 5, 2024, driven by robust sequential growth in deposits. The HDFC merger mainly drives this growth. If we exclude the merger impact, the CD ratio for the current fortnight stood at 75.5% compared to 75.0% on April 7, 2023.
Further, as the credit offtake moderates compared to last year but remains higher compared to the increasing deposit growth, the credit-to-deposit ratio is also slated to continue to remain elevated at above 81% in FY25.
PSBs continue to have a lower CD ratio compared to PVBs leaving some headroom for credit growth in the near term, hence PSBs could catch up to a certain extent with the PVBs in the near term.
