India’s banking system could face liquidity challengers if credit growth continues to outpace deposit growth and raising deposits to keep pace with the loan growth to keep the cost of credit low remains the top agenda of banks, a survey by FICCI-IBA shows.
The findings of the survey, which was carried out between January and June, show that long-term credit demand has seen continued growth for sectors such as infrastructure, metals, iron and steel, engineering. Infrastructure is witnessing an increase in credit flow with 77% of the respondents indicating an increase in long-term loans.
“This could be attributable to the government’s capital expenditure push for the infrastructure sector,” FICCI-IBA said in a joint statement. “The survey suggests that the outlook on expectation for growth of non-food industry credit over next six months is optimistic with 62% of the participating banks expecting non-food industry credit growth to be above 12%,” it added.
As per the survey’s findings, customers’ preference for higher-yielding investments and the ability to lock those interest rates for a longer period has led to a shift from low-cost to high-cost deposits, thereby increasing deposit costs for lenders.
More than two-thirds of respondent banks (67%) reported a decrease in the share of CASA deposits in total deposits in the current round of the survey. Term deposits have picked up pace as reported by the respondent banks due to higher/attractive rates.
About 80% of the participating Public Sector Banks reported a decrease in share of CASA deposits during the first half of 2024 while over half the private sector bank respondents reported a decrease in the CASA deposits.
A total of 22 banks including public sector, private sector and foreign banks participated in the 19th round of the FICCI-IBA survey. Together they represent about 67% of the banking industry as classified by asset size.
With improved balance sheets, banks said they had been supporting economic activity through sustained credit expansion.
Published – September 10, 2024 08:45 pm IST
