Deposit growth has picked up pace in the Q2FY25. According to the business updates provided by various private banks, the deposit-to-credit ratio for the private banks is finally seeing a reverse trend after at least two years. RBI data at the end of Q1 suggested that bank deposits grew by 11.7% while, on the other hand, credit grew by 15%. Four out of the five banks have reported 2-3% higher than the pace seen in Q1.

The largest private bank in the country, HDFC reported a 7% year-on-year growth in advances in the three months ended September. Deposits surged by 15.1% YoY to 25 trillion compared to an industry average of 11.5%.  IndusInd bank reported an increase of 15% YoY deposit while 13% in YoY credit. Yes Bank also reported an 18.3% increase in YoY deposits while a 13.1% increase in YoY credit.

High credit growth had increased the credit-to-deposit ratio as high as around 80% in April 2024. The RBI governor and the finance minister both sound the alarm against the increased reliance on high-cost and bulk deposits, potential liquidity risk. The banks to maintain the optimal credit-deposit ratio opted a slow down on lending, such as unsecured loans the fastest growing segment of the credit market, to temper this growth.

Recent data from the Central Board of Direct Taxes highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of Securities Transaction Tax (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. The number of Demat accounts went beyond 17 crores in August 2024, which are prerequisite for participating in the stock market. With Indians investing more and more in markets and mutual funds there was a growing concern with bank deposits. There had been an increased tendency to financialization of the savings. Banks to tackle this challenge started to offer higher interest rates on deposits and introduce innovative products.

According to analysts at Standford C. Bernstein “Overall we see this as a good set of numbers and if the margin is stable despite the slower loan growth, it would provide greater confidence in a quick normalization story”

According to brokerage Motilal Oswal, the difference between the deposit and credit growth has reduced to 2.3% in Q2FY25, from the 8.8% due to the regulatory oversight on banks. This tendency to manage loans and liquidity will likely lead to a slowdown in the growth of credit and the gap between deposit and loan growth will shrink to less than 1%, and the overall loan growth is expected to slow down to 12.5% in the financial year 2025.