On November 16, the MD and CEOs of certain public and private sector banks met with the Governor, Deputy Governor, and a few other senior officials of the Reserve Bank of India (RBI), the country’s top banking regulator. The Governor instructed banks to “be attentive” to the changing macroeconomic circumstances, particularly worldwide economic consequences, in consideration of the role private commercial banks had played in sustaining economic development throughout the epidemic and in the current instability in the financial markets. Topics of discussion covered, among other things, the use of cutting-edge technological solutions, the slow rise in deposits related to credit growth, and asset quality.
According to the most recent weekly statistics provided by the RBI for scheduled commercial banks, total deposits increased by 8.2% compared to year-over-year growth of 11.4%, while credit off-take increased by 17%.
Krishnan Sitaraman, Senior Director and Deputy Chief Rating Officer, said that loan growth has increased in recent quarters.
Due to decreased economic activity during the pandemic, loan growth was on a reduced path. With the economy now operating normally, credit growth has accelerated, notably during the past three quarters. Another factor for the slower growth of deposits, according to analysts, is the constant rate of deposit increases. Banks passed on increased rates through their loan portfolios, the majority of which had variable interest rates, but their approach to deposit rates was far more cautious. Although this increased banks’ net interest margins, it did not increase their capacity to extend further loans.
