Deposits and outstanding loans fell sharply in the fortnight to 15 October, pointing to a broad-based cooling in lending momentum and renewed volatility in bank funding.
India’s banking system saw a sharp swing in mid-October, with deposits falling by Rs 5.19 lakh crore on a net basis in the fortnight to October 15 and outstanding credit contracting by Rs 2.52 lakh crore, Reserve Bank of India data showed. The retreat left total deposits at Rs 278.76 lakh crore and outstanding loans at Rs 227.43 lakh crore, bringing the
The latest figures point to a cooling in lending momentum after a period of strong expansion. Credit growth slowed to 18.2% from 19.4% in the previous fortnight, while deposit growth eased to 16.7% from 17.8%. Business Standard reported earlier that bank lending to retail borrowers, non-banking financial companies and industry had already been losing pace, suggesting the slowdown is spreading across multiple parts of the loan market.
That comes after a strong run for Indian banks in the previous financial year, when deposits and credit both expanded sharply as lenders competed more aggressively for funds. Moneycontrol reported that deposits with scheduled commercial banks rose 10.2% in FY23, while Business Standard said credit grew 15%, the fastest pace in more than a decade. RBI data cited by those reports also showed that depositor behaviour was shifting towards shorter-term placements as rates rose.
The broader backdrop is one of tighter liquidity management by the central bank and changing funding conditions in the system. The Reserve Bank phased out the incremental cash reserve ratio in 2023 after injecting liquidity back into the market, while deposits had been nearing the Rs 200 lakh crore mark around that period, according to ETBFSI. The latest fortnightly data suggest that despite the system’s large scale, banks are still having to manage volatility in both funding and loan demand.
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