Pressure On India Banks To Raise Deposit Will Weigh Credit Growth This Fiscal: HSBC

The continued pressure in deposit mobilisation for India's banks remains a downside risk to system credit growth in the current financial year, according to HSBC Global Research.

With increased risk weights, growth in credit to non-banking financial companies and personal loans has moderated and their contribution to incremental credit is also declining, HSBC said in a report on Aug. 30.

Outstanding corporate credit growth in July was at 11.2%, year-on-year, while the outstanding credit to NBFCs declined by 170 bps sequentially in July, the note said.

Non-food bank credit registered a growth of 15.1% in July, compared to the same period last year. Agriculture credit grew at 18.1%, while the industry grew at 10.2%. Services moderated to 15.4% and personal loans grew at 17.8%, according to RBI data.

Accounting for a slowdown in credit to NBFCs and personal loans, HSBC expects the loans to clock 14% year-on-year growth in financial year ending March 2025.

Sustained pressure on deposit mobilisation, high credit-to-deposit ratio, and any asset quality risks in personal loans remain downside risks to system credit growth in the current fiscal, it said.

Banks have to be proactive in dealing with liquidity management because the persistent gap between credit and deposit growth could become a challenge, leading to structural liquidity issues, Reserve Bank of India Governor Shaktikanta Das told NDTV Profit in an exclusive interview last month.

While bank deposits remain a dominant percentage of financial assets owned by households, their share has been declining, with households increasingly allocating their savings to mutual funds, insurance funds, and pension funds.