State Bank of India, India’s largest lender and public sector bank, in its report, has dismissed the concerns about the flagging in the banking sector’s deposit growth. According to ANI, the Minister of Finance and Corporate Affairs, Nirmala Sitharaman conducted a review meeting with heads of public sector banks and regional rural banks on August 19, Monday. According to the SBI economists, the concern over deposit growth is a statistical myth. This is because the total amount of deposits since the financial year 2021-22 has been much more than the allotted credit.
The report highlighted that in the Financial Year 23, the banking sector, particularly All Scheduled Commercial Banks (ASCBs), registered the highest absolute growth in both deposits and credit since 1951-52. Deposits have increased by an impressive Rs 15.7 lakh crore. Meanwhile, the credit expanded by Rs 17.8 lakh crore, pushing the incremental Credit-Deposit (CD) Ratio to a staggering 113 per cent. The momentum continued into FY24, with deposits rising by Rs 24.3 lakh crore and credit by Rs 27.5 lakh crore. Incremental Credit-Deposit Ratio(ICDR) is the absolute growth in the credit concerning the absolute growth in the deposits.
The report noted that the end of the divergence cycle could be June 2025 -October 2025. Divergence means when the value of an asset, indicator, or index moves, the related asset, indicator, or index moves in the other direction. As per a Reserve Bank of India (RBI) study, as of June 2024, India is in the 26th month of this divergence. Predictions have indicated that the cycle could end between June and October 2025. According to the report, once this divergence ends, deposit growth is expected to pick up.
The report also noted that senior citizens have held 47 per cent of the term deposits, implying the younger generation is increasingly refraining from traditional avenues like bank deposits. They are looking for other options with higher returns. The median age of all investors in capital markets is now 32 years with around 40 per cent of investors being less than 30 years. Economists have advocated a change in the structure of tax on deposits so that the large deposit amount coming to banks can be used for credit growth.
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