6th September 2024 (11 Topics)

Copy

2 Sep

3 Sep

4 Sep

5 Sep

6 Sep

7 Sep

9 Sep

10 Sep

11 Sep

12 Sep

13 Sep

14 Sep

16 Sep

17 Sep

Weak Bank Deposit Growth

Context

Recently, there has been a notable divergence between the growth rates of bank deposits and credit in India. For the quarter ending June 2024, while deposits grew at 11.7%, bank credit surged by 15%. This widening gap has raised concerns about an asset-liability mismatch and potential liquidity issues within the banking sector.

Deposit-Credit Gap

Deposit Growth vs. Credit Growth: In June 2024, deposit growth was 11.7%, but bank credit grew at 15%, indicating that banks are lending more than they are receiving in deposits. When this gap increases, it can lead to liquidity problems, as banks may struggle to meet their lending obligations.
Recent Trends: Bank credit grew by 14%, while deposits grew by only 11%. This continued disparity has highlighted the pressing issue of managing liquidity effectively within the banking sector.
Factors Contributing to Slower Deposit Growth
- Shift to Capital Markets: One significant factor is the outflow of household savings from banks to capital markets. Post-COVID-19, there has been a surge in retail activity in capital markets. The rise in demat accounts (from 11.45 crore in FY23 to 15.14 crore in FY24) and the growth of mutual funds (with assets under management reaching Rs 64.97 lakh crore) reflect this trend.
- Increased Retail Participation: The increase in retail participation, especially through mutual funds, has contributed to the slower growth in bank deposits. The mutual funds industry, with 9.33 crore systematic investment plan (SIP) accounts, is drawing more savings away from banks.

Fact Box: Key-Concepts

Deposit Growth: It is the rate at which the amount of money deposited in banks increases over a specific period.
Credit Growth: It is the rate at which banks' lending to customers increases over a specific period.
Asset-Liability Mismatch: It is a situation where the growth of a bank's assets (loans and advances) outpaces the growth of its liabilities (deposits), creating a potential liquidity shortfall.
Liquidity: The availability of liquid assets (cash or easily convertible assets) that banks can use to meet their short-term obligations and operational needs.
Capital Markets: Financial markets where long-term securities such as stocks and bonds are issued and traded, often offering higher returns compared to traditional bank deposits.

Africa can make India’s ‘critical mineral mission’ shine

International Relations Bilateral relations

The Food Security Act has revamped the PDS

Polity & Governance Governance

Income Inequality

Economy Poverty and Unemployment

China-Africa summit 2024

International Relations Bilateral relations

India-Singapore Agreement on Semiconductor Chips

International Relations Bilateral relations

Vertical Fiscal Imbalance (VFI)

Polity & Governance Union and the States

Investment & Role of Private Sector

Economy Miscellaneous

Bedouin Community (Israel)

International Relations West Asia

National Exit Test (NExT) for Ayush

Polity & Governance Governance

Loss and Damage Fund (LDF)

Ecology and Environment Environment Conservation

GS Analyst: Daily Current Affairs

Weak Bank Deposit Growth

Deposit-Credit Gap

Fact Box: Key-Concepts

User Login

User Register

Forgot Password

Verify Your Mobile Number