Deposit growth outpaces credit demand in early April amid liquidity boost and high interest schemes

Fortnightly deposit growth in the first week of April sharply exceeded demand for incremental credit, latest central bank data showed.

Deposit growth stood at 2.4% as on April 4 compared to the previous fortnight, while loan growth was at 0.9%. However, on a yearly basis, deposit growth ( 10%) trailed credit growth (nearly 11%), in continuation of trends seen in the past many months.

The reporting quarter for which the data pertains falls between the end of the previous financial year and the start of the new fiscal year. Usually, during the year-end period, banks usually give short-term loans to companies to show balance sheet expansion. These loans often are repaid at the beginning of a new financial year, in turn boosting deposit growth, according to industry executives.

However, this time around, the improvement in the banking system’s liquidity and rush among some depositors to lock in savings at higher rates offered by banks under special schemes ahead of the expectations of fall in rates are also seen as the factors helping deposit growth.

The banking system closed FY25 with loan growth of around 11% YoY and deposit growth of little over 10%.

While the credit growth is usually tepid in the fiscal first quarter, it is expected to pick up in subsequent quarters and grow by around 100-200 bps in FY26 on the back of interest rates and tax cuts, and the central bank’s supportive measures, according to rating agencies. However, this hinges on the ability of banks to mobilize liabilities.

“The outlook for bank credit off-take remained positive due to economic expansion, a rise in capital expenditure, growth in retail credit, and the anticipated expansion in capital expenditure spending, especially by the private sector. The growth is anticipated to be broad-based across the segments,” rating agency CARE had said in a report last week.