MUMBAI: After the Reserve Bank of India raised concerns about the high credit-deposit (CD) ratio, banks have started taking steps to bring it down by growing deposits faster in the fourth quarter. The provisional figures show that the deposit growth of several banks has outpaced loan growth in the fourth quarter which will result in moderation of CD ratio.
“Provisional business figures from 22 banks accounting for around 50% of the system loan/deposits indicate deposits growth (up 6% quarter-on-quarter) outpacing loans growth (up 3% q-o-q),” said ICICI Securities in a report. “We argue that an unmissable trend from the business updates is the q-o-q improvement in loan to deposits ratio (LDR) for almost all banks,” it said.
The LDR improvement phenomenon also applies to even select PSU banks which had one of the lowest LDR, added the report.
The CD ratio of several banks, including HDFC Bank, IDFC First Bank and some small finance banks has gone above 100%, which is higher than the industry average of 80%. Compared to private banks, public sector banks have a lower CD ratio.
“HDFC Bank’s business update for the fourth quarter of 2023-24 indicated that deposit mobilisation has been very strong amid a tight liquidity environment, which is a key positive,” noted a report from brokerage firm Sharekhan. “Deposit growth has smartly outpaced the rise in gross advances resulting in faster normalisation of the credit-deposit ratio,” it added.
According to provisional data, HDFC Bank grew its deposits 7.5% q-o-q to `23.80 trillion as on March 31, 2024, while its gross advance rose 2% to `25.08 trillion.
Yes Bank’s overall deposits rose 22.5% y-o-y and 10% q-o-q to `2.66 trillion, whereas overall advances rose 14% y-o-y and 5% q-o-q to `2.28 trillion as on March 31, 2024. RBL Bank’s overall deposits rose 22% y-o-y and 12% q-o-q to `1.03 trillion as on March 31, while gross advances rose 19% y-o-y and 5% q-o-q to `85,640 crore. Bandhan Bank too reported a faster pace of deposit growth than credit in Q4 on a sequential basis.
“Deposit progression remains a critical business metric, given an elevated CD ratio. As a result, banks will continue to make efforts to mobilise deposits to improve their CD ratios,” said Motilal Oswal Financial Services in a report.
CD ratio, also known as loan-to-deposit ratio, indicates how much of the money that banks have raised in the form of deposits has been deployed as loans. A high CD ratio may pose liquidity and credit risk for a lender. The average CD ratio of the banks has generally been hovering marginally below 80% since September 2023, according to CareEdge Ratings.
Source: The Financial Express