Mismatch between credit and deposit growth rates hurting banks
A mismatch between credit and deposit growth rates is hurting banks who are finding no fresh investment commitments in the private sector to turn around the low credit demand.
The rise in overall deposits of scheduled commercial banks as of March 2021 stood at 12.3 per cent year-on-year, significantly outpacing the credit growth of 5.6 per cent, thus putting pressure on the margins.
The slowdown in credit growth, according to Care Ratings, reflects a degree of risk aversion with banks being selective in giving fresh loans to the corporate segment. The borrowers, too, are unwilling to raise debt.
“The real challenge for the banking sector is on one hand there is deposit growth and on the other hand it is not able to grow significantly on the credit side and that hurts,” V.S. Radhakrishnan, deputy managing director, SBI, said at a Merchants Chamber of Commerce & Industry event on Monday.
“Credit offtake is a matter of concern in the banking industry. There is a huge slowdown in fresh capex commitments by the private sector. Scaling down and deferring of capex is happening in a big way,” said Radhakrishnan.
He added that corporates are also looking to deleverage balance sheets through various measures, such as accessing the equity market, selling non-core assets and using internal cash to pay off debt.
A study of SBI’s economic research wing analysed the data of more than 1,000 listed companies in 2020-21 and found more than Rs 1.7 lakh crore of debt was reduced during the pandemic year. At the same time primary issuance of bonds increased 9 per cent.
Radhakrishnan said even as there is a degree of uncertainty among lenders in assessing the risks of certain businesses, there is a short-term concern among banks in lending to PSUs at very low rates, resulting in profitability taking a beating.