FD rates rise as loans grow faster than deposits
FD rates rise –
MUMBAI: Notably, bank credit growth has outpaced deposit increases in the initial five months of the current fiscal year, indicating a potential upward movement in bank deposit rates. The weighted average term deposit rates of banks increased by 27 basis points in April-August 2023, according to RBI data. Bank deposits grew by 6.6% to Rs 149.2 lakh crore, while bank credit surged by 9.1% to Rs 124.5 lakh crore during this period. Adjusting for the HDFC merger, banks added Rs 11.9 lakh crore in deposits, with loan books expanding by Rs 12.4 lakh crore.
The credit-deposit growth disparity is managed through banks’ surplus investments in government securities. CareEdge Ratings expects credit growth for the current fiscal year to be in the range of 13-13.5%, excluding the impact of the HDFC merger. The rating agency underscores that banks will strengthen branch networks to ensure deposit growth does not hinder credit offtake. Madan Sabnavis, the chief economist at Bank of Baroda, notes the divergence between credit and deposit growth affecting liquidity in money markets, with the rise in deposit costs observed in July likely to persist in August. The weighted average term deposit rate of banks rose from 6.28% in April to 6.55% in July 2023.
Economists highlight that future deposit rates will be influenced by liquidity leakages due to cash withdrawals. Concerns arise regarding the temporary nature of the surge in current and savings account deposits following the withdrawal of Rs 2,000 banknotes. In the short term, liquidity is expected to face pressure in mid-September due to advance tax outflows, surpassing the Rs 25,000 crore released by RBI from the incremental cash reserve ratio requirement.
