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Rising credit to deposit ratio may pose problems for some banks
August 14, 2023
A rising credit-to-deposit (CD) ratio may pose problems for some banks as they would have to borrow funds at higher rates to meet the demand for loans.
This, when the Reserve Bank of India (RBI) announcement to mandate a 10% incremental cash reserve ratio(I-CRR) is expected to weigh on banking system liquidity in the near-term, say experts.
In a recent report, credit rating agency CareEdge showed that the CD ratio of banks has risen to 75.9% as on March 31 from 67.8% a year ago as deposit growth has consistently lagged loan growth. So far, advances have been supported by loans to non-bank lenders, growth in personal loans, and demand from the agriculture sector.
While all banking groups witnessed a rise in their CD ratio in the March quarter, private banks and small finance banks were among the highest.
The CD ratio of state-owned banks rose 420 basis points year-on-year(y-o-y) to 69.8% as on March 31, the report showed.
Currently, experts peg the CD ratio at around 80% accounting for the merger of Housing Development Finance Corporation with HDFC Bank.
“While CD ratio is currently not at alarming levels, it is higher than before and is expected to rise going ahead,” says CareEdge Senior Director Sanjay Kumar Agarwal said.
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