MUMBAI: Deposit growth of scheduled commercial banks accelerated to 17.76% year-on-year as of August 31, the highest level since 2019, following a sharp influx of foreign currency deposits under the Reserve Bank of India’s special FCNR(B) mobilisation scheme.
The credit growth remained strong at 19.08%, supported by corporate and MSME demand ahead of the festive season.
The sharp rise in deposits, from around 14.7%, was primarily driven by FCNR(B) inflows, analysts said.
“The jump in deposits from around 14% to 18% is only because of FCNR,” said Sanjay Agarwal, senior director, CARE Ratings. “That has been the major development and that has boosted their liquidity.”
The RBI had brought the FCNR(B) window to a close on August 31, ahead of the original September 30 deadline, after receiving a strong response.
With sizeable FCNR(B) deposits in the sight, banks opted to go slow on chasing domestic deposits in the last few fortnights, and preferred to retire costly wholesale deposits, said Sachin Sachdeva, vice president and co-group head, financial sector ratings, ICRA. The significant ramp-up in deposits in August should therefore be viewed largely as FCNR-driven, with subsequent fortnights, after the deployment of surplus liquidity, likely to give an indication of underlying domestic deposit mobilisation.
The impact of FCNR(B) inflows is expected to remain visible in year-on-year deposit growth for several months because of the low bases. Agarwal said the elevated growth rate could persist until June next year.
Meanwhile, bank credit grew 1.73% over the fortnight and 19.08% year-on-year. Analysts said the current pick-up is being driven primarily by corporate and MSME demand, with retail credit expected to gain further momentum as the festive season progresses.
“Underlying demand is pretty robust,” Agarwal said, adding that the absence of adequate funding from debt markets and overseas borrowing was also pushing demand towards bank lending.
Sachdeva said the festive cycle-led credit offtake has already begun, with businesses typically preparing for higher retail demand ahead of the actual consumption period.
With banks having robust liquidity, credit deployment will be the priority in the near-term and the India Inc is likely to find attractive borrowing opportunities in the domestic market, Sachdeva said.
Source: The Financial Express
