Chart of the Day: Mind the gap between deposits and loans

Growth in bank loans is outstripping that of deposits faster than before now. The latest data from the Reserve Bank of India shows that as of July 1, non-food credit growth quickened to 14.4 percent while deposits expanded by just 9.8 percent.

Note that until February this year, deposit growth had outstripped that of loans consistently for more than two years. The widening wedge between deposits and loans could continue to remain so and has implications for interest rates as well as banks’ margins.

The hunt for deposits would intensify among banks which could push up retail deposit rates further. Wholesale deposit rates have already adjusted higher several times in the past few months.

Yet another impact is on liquidity surplus which is set to reduce with sustained double digit credit growth. Analysts expect large banks to have the edge on net interest margins owing to a higher proportion of their deposits being in low-cost savings accounts.

Mid-sized and small banks would have to sweat to increase their deposit growth in the wake of surging disbursals. The upshot is that liquidity surplus will reduce and become uneven as well.