‘Statistical Myth’: SBI report allays concerns over declining bank deposits; robust growth seen in deposits, credit

The belief that deposit growth in the Indian banking sector is flagging is a statistical myth, and concerns over the issue are unwarranted, according to a recent report by State Bank of India (SBI).

The ANI news agency, quoting the SBI report, said the banking sector, which includes All Scheduled Commercial Banks (ASCBs), registered the highest absolute growth in both deposits and credit since 1951-52 as of the financial year 2023.

Bank deposits rose by ₹15.7 lakh crore, and credit expanded by ₹17.8 lakh crore, fuelling the incremental Credit Deposit (CD) ratio to 113 per cent. The momentum carried on into the financial year 2024, with deposits rising by ₹24.3 lakh crore and credit by ₹27.5 lakh crore, according to the report.

Despite the narrative of the slowdown in deposit growth, the data shows a different story. Incremental deposit growth has overtaken incremental credit growth, as deposits rose to ₹61 trillion, compared to ₹59 trillion in credit, as of the financial year 2022, ANI quoted the report as saying.

“Decadal Deposits have expanded by a sharp 2.75 times, but Decadal credit expanded by 2.8 times since FY22, deposits expanded ₹61 trillion vis-a-vis credit expansion at ₹59 trillion,” it said.

"The myth of a flagging deposit growth appears as just a statistical myth with credit growth outpacing deposit growth being tom-tommed as a deceleration in deposit growth," said the report.

According to a study by the Reserve Bank of India (RBI), the Indian banking regulator, in June 2024, is at its 26th month of this divergence, with expectations indicating that the cycle will likely end between June and October 2025, said the news agency. The study also highlighted that once the divergence ends, the growth in deposits is expected to rise, while credit growth can slow, indicating the start of a rate reversal cycle and a potential slowdown in the economy.

CASA deposit trend:

The SBI report also highlighted that the CASA (Current Account Savings Account) deposits fell to 41 per cent in the financial year 2024, compared to 43.5 per cent in the previous year, as savings bank deposits declined.

The decline in savings bank deposits closely aligns with pre-COVID-19 pandemic levels of 42 per cent and shows a shift in how the deposits are being used, as per the report.

The stability of savings bank deposits is a matter of concern, as the deposits are being used mostly for transactional purposes, resulting in more movement across the banking system.

Higher returns on term deposits drive a shift in bank deposits as term deposits have increased to 59 per cent in the financial year 2024, compared to 56.5 per cent in the previous year while the CASA deposits see continued decline. The SBI report sees this as a natural response to the increasing interest rate environment, as funds move from low-interest CASA accounts to higher-yielding time deposits, as per the news report.

The report also said the myth of declining deposit growth may continue, but deposit growth remains strong, with term deposits taking a larger share as interest rates rise, as per the news agency.

Finance Minister Nirmala Sitharaman is holding a review meeting with heads of public sector banks and regional rural banks on August 19.