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No specific credit-deposit ratio for banks, says RBI governor Shaktikanta Das

Das says banks should avoid exuberance in lending and there should be some cor-relation between their deposit base and credit growth

Our Special Correspondent Mumbai Published 19.01.24, 06:10 AM
Shaktikanta Das.

Shaktikanta Das. File picture

Reserve Bank of India governor Shaktikanta Das has said banks should avoid exuberance in lending and adopt prudential measures to mitigate risks by establishing a clear correlation between credit and deposit growth.

The banking regulator has already flagged the risks of a skewed credit-deposit ratio, which has started to amplify with deposit growth hovering at 12-13 per cent and bank credit expanding by close to 15 per cent.


The concerns surrounding a widening CD ratio has blighted bank stocks in the past few days, precipitating a dramatic slide in the stock markets.

In an interview with a television channel at the alpine resort of Davos where government and industry leaders have huddled at the convention organised by the World Economic Forum, Das said the RBI had no plan to mandate a specific number for the CD ratio that banks would need to comply with.

“We are just saying that there must be some correlation between credit and deposit growth,” the RBI governor said.

His remarks at Davos came as the shares of HDFC Bank tanked more than 11 per cent in two days, with the crash eroding its market cap by Rs 1.45 lakh crore.

The bank’s high credit-deposit (CD) ratio — as much as 110 per cent for the quarter ended December 31, 2023 — was one of the reasons for the fall in its share price.

Brokerages such as Nomura fear the high CD ratio will make deposits a significant constraint to growth.

The CD ratio shows how much a bank lends out of its deposits — a very high ratio will lead to pressure on its resources, while a low number denotes the bank is not utilising its resources efficiently.

Though the RBI has not prescribed a particular CD ratio, some feel it should be around 70-75 per cent.

At the systemic or individual bank level, the RBI does not see any big risk from credit growth outrunning deposit growth.

The RBI governor averred that the Indian banking sector is very ``robust’’ at the systemic level.

Quick action

Stating that banks should not show any exuberance in lending, the RBI governor said it had observed such signs about personal loans and this was addressed in a pre-emptive manner in November 2023.

The RBI had then increased the risk weightage on such unsecured loans for banks and NBFCs.

“At a sub-sectoral level, there were places where we saw a possible build-up of exuberance. We acted on that and the numbers that prevail today not that bad’’.

Das observed if the high rates of growth in these unsecured loans were left unattended then, it would have created potential stress for the sector.

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