Banks need Rs 20 lakh crore fresh deposits to meet credit demand: Crisil

Coimbatore, Feb 6: With bank credit expected to grow at a robust 13%-14% on an average between fiscals 2019 and 2020, significantly faster compared with the 8% seen in fiscal 2018, banks will have to raise about Rs 25 lakh crore over the two fiscal years, ratings agency CRISIL has estimated.
“While Rs 5-6 lakh crore is expected to become available through the release of statutory liquidity ratio (SLR) funds, about Rs 20 lakh crore would need to be raised through fresh deposits,” it said. “That would be well above the average annual deposit mobilisation of about Rs 7 lakh crore over the past few years. It would also put upward pressure on the interest rates bank offer on deposits,” the agency said.
Traditionally, banks have utilised their excess SLR in the initial period of credit revival. “They would do that this time around, too. That said, bulk of the credit demand would be met by deposit growth and to a minor extent by other resource raising options like infrastructure bonds,” CRISIL stated.
Crisil expects banks to maintain on average about 4% surplus SLR when credit growth picks up, compared with nearly 8% now. “This, when juxtaposed with the Reserve Bank of India’s plan to reduce the SLR limit to 18% by March 2020, would translate to a release of Rs 5-6 lakh crore from the SLR kitty to meet credit demand,” the agency said.
“Consequently, the asking rate of annual deposit growth would be a significant 400 basis points (4%) higher at about 10% compared with around 6% growth in fiscal 2018. To be sure, this is way lower than the nearly 25% peak seen in fiscal 2007,” Crisil said.
Deposit growth has been declining over the past decade, and particularly in the past three years when it saw a significant drop as interest rates offered on fixed deposits dipped below the returns on other financial investment avenues. That diverted the flow of household financial savings away from banks.
“Lower deposit growth has meant a steady rise in the credit to deposit ratio (C/D Ratio) on a stock basis, which is expected to touch 78% by the end of fiscal 2019, compared with 73% at the end of fiscal 2017,” said Krishnan Sitaraman, senior director, CRISIL Ratings. “Banks will need to raise at least Rs 19-20 lakh crore of fresh deposits until March 2020 to keep the credit-deposit ratio near 80%, which in itself would be highest in a decade,” he said.