The mismatch between credit and deposit growth rates is hurting banks



The increase in aggregate commercial bank deposits scheduled for March 2021 stood at 12.3% year-on-year, significantly outpacing credit growth of 5.6%



A mismatch between credit and deposit growth rates hurts banks, which cannot find new commitments to private sector investment to address weak demand for credit.

The overall increase in commercial bank deposits scheduled for March 2021 was 12.3% year-on-year, significantly outpacing credit growth of 5.6%, putting pressure on margins.

The slowdown in credit growth, according to Care Ratings, reflects some risk aversion, with banks being selective in granting new credit to the corporate segment. Borrowers, too, are unwilling to take on debt.

“The real challenge for the banking sector is on the one hand the growth of deposits and on the other hand, it is not able to grow significantly on the credit side and that hurts,” VS Radhakrishnan said, Deputy Managing Director, SBI, at a press conference. Demonstration of the Chamber of Commerce and Industry on Monday.

“Credit drawdown is a concern in the banking industry. There is a huge slowdown in new private sector investment commitments. The reduction and postponement of capital spending is happening in a big way, ”Radhakrishnan said.

He added that companies were also seeking to deleverage their balance sheets through various measures, such as accessing the equity market, selling non-core assets and using internal cash to pay down debt.

A study by the SBI’s economic research wing analyzed data from more than 1,000 listed companies in 2020-21 and found that more than 1.7 lakh crore of debt had been reduced during the pandemic year. At the same time, primary bond issuance rose 9%.

Radhakrishnan said that although there is a degree of uncertainty among lenders in the risk assessment of some companies, there is a short-term concern among banks to lend to PSUs at very low rates, resulting in lower profitability.



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