Credit growth surges PSBs H1 FY23 balance sheet to 10 year high says RBI report

‘Commercial banks may have to raise deposit rates more to meet a surge in credit demand; while banks have swiftly transmitted increases to lending rates, deposit rates have been laggards for most’

Under the backdrop of a highly uncertain global environment caused by globalisation of inflation, energy and food shortages, and synchronised tightening of monetary policy worldwide, the Indian economy was exhibiting signs of a gradual strengthening of the growth momentum, drawing from macroeconomic fundamentals, the Reserve Bank of India (RBI) said in the Report on Trends and Progress of Banking in India 2021-22.

Fuelled by robust credit demand in 2021-22 as also in 2022-23 so far, the consolidated balance sheets of scheduled commercial banks (SCBs) in India registered double-digit growth in 2021-22 after a gap of seven years, led by credit growth, which accelerated to a ten-year high in the first half of this financial year ending March 2023, the RBI said in the report.

Commercial banks may have to raise deposit rates more to meet a surge in credit demand, the central bank added. The Reserve Bank has raised rates aggressively this year to tame inflation. While banks have swiftly transmitted the increases to their lending rates, deposit rates have been laggards for most.

“During 2021-22, as credit growth picked up and deposit growth moderated, the incremental credit-deposit (C-D) ratio reached a four-year high,” the RBI said in its report. Loans of Indian banks rose 17.5% in the two weeks to December 2 from a year earlier, while deposits rose 9.9%, the latest data from the RBI showed earlier in the month.

The capital-to-risk weighted assets ratio (CRAR) of SCBs strengthened from 16.3% at end-March 2021 to 16.8% at end-March 2022, with all banks meeting the regulatory minimum capital requirement of 11.5% as also the common equity tier-1 (CET-1) ratio requirement of 8%.

The asset quality and profitability of SCBs have improved, while low slippages and high capital buffers were reinforcing investor confidence in banks, RBI highlighted in the report.

“The gross non-performing assets (GNPA) ratio of SCBs has been declining sequentially from its peak in 2017-18 to reach 5.8% at end-March 2022, led by lower slippages as well as reduction in outstanding GNPAs,” the RBI said.