India’s banking system saw deposit growth outpace credit for the first time in two months in late October, signalling tighter liquidity conditions even as festive-season demand and GST-driven consumption continued to support loan growth, CareEdge Ratings said in a report published on Monday.
Bank credit rose 11.2 per cent year-on-year to Rs 193.9 lakh crore as of 31 October, but the pace of expansion softened from 11.8 per cent a year earlier, reflecting weaker corporate borrowing and reduced activity in certain segments. Deposit growth, meanwhile, increased 9.7 per cent to Rs 241.7 lakh crore, supported by a sharp rise in demand deposits during the festive sales cycle.
The shift marks a rare instance in which deposits have expanded faster than credit, a trend that could ease pressure on the credit-to-deposit (CD) ratio, which has stayed above 80 per cent for several months. CareEdge Ratings said the CD ratio moderated slightly to 80.2 per cent in the fortnight ending 31 October, driven by higher deposit accretion of Rs 2.91 lakh crore versus a Rs 1.8 lakh crore rise in credit.
Festive Demand, GST Cuts Lift Credit But Momentum Slows
The report said credit offtake benefited from festive-season purchases, strong vehicle financing and the boost from recent GST rate cuts on key consumer goods. Retail and MSME borrowing remained resilient, while some corporates shifted to bank loans amid elevated bond yields.
However, CareEdge noted that overall credit momentum has cooled when compared with the previous year. Lending to certain industries softened, and rising yields in the bond market reduced refinancing appetite. Despite the seasonal uptick, the growth rate remains below the double-digit highs seen in earlier quarters.
Aggregate deposits expanded 1.2 per cent over the previous fortnight, with demand deposits recording a notable 21 per cent annual increase — significantly higher than the 12 per cent rise a year earlier. CareEdge attributed the increase to festive business collections and heavy transaction flows across retail and e-commerce channels.
Demand deposits now total Rs 31 lakh crore, accounting for 12.8 per cent of the banking system’s deposit base. Time deposits, which make up 87.2 per cent of all deposits, grew at a slower 8.2 per cent as the ongoing interest-rate-cut cycle made alternative investment avenues more attractive. The report notes that deposit growth has remained below 10 per cent for three consecutive months.
Liquidity Tightens As Call Rate Moves Above Repo
The weighted average call rate (WACR) rose to 5.58 per cent as of 31 October, eight basis points above the 5.50 per cent repo rate. The rise reflects tighter liquidity conditions amid firm credit demand and the Reserve Bank of India’s (RBI) active deployment of Variable Rate Reverse Repo (VRRR) auctions.
CareEdge said the liquidity environment remains sensitive, with the RBI managing short-term mismatches through VRR and VRRR operations. System liquidity has faced intermittent pressure from tax outflows and changes in government cash balances, pushing short-term rates higher.
The bank-credit-to-total-assets ratio edged up to 72.6 per cent in late October, supported by sustained loan growth. Government investments, meanwhile, dipped slightly to 25.8 per cent of total assets. Outstanding government securities held by banks stood at Rs 68.9 lakh crore, up 5.1 per cent from a year earlier.
Banks and financial institutions issued more Certificates of Deposit (CDs) in October, with outstanding CDs rising 10.6 per cent year-on-year to Rs 5.15 lakh crore. Yields on CDs varied but trended higher in response to tightening liquidity.
Outstanding commercial papers (CPs), commonly used by corporates for short-term funding, declined to Rs 4.8 lakh crore as of 31 October. Growth in CPs slowed to 7.8 per cent from double-digit levels earlier in the year, highlighting a shift in corporate borrowing behaviour.
CareEdge also highlighted the Reserve Bank of India’s new Trade Relief Measures, 2025, aimed at easing debt-servicing pressures for exporters affected by global trade disruptions. The directions introduce a moratorium on term-loan repayments falling due between 1 September and 31 December for borrowers with standard export-credit accounts.
The report said the measures will provide temporary relief to export-linked industries facing tighter global demand and currency volatility.
CareEdge concluded that while deposit growth exceeding credit provides short-term cushioning, structurally lower deposit mobilisation remains a risk for the banking system, especially as credit demand is expected to stay firm through the final quarter of the financial year. |
