Bank credit growth is at a two-year high of 18.6%, driven by debt market appreciation

KOLKATA: Bank credit expanded at the fastest pace in two years in the fortnight to June 30, rising 18.6% year-on-year despite geopolitical headwinds, while deposit growth printed 13.3%, data released by the Reserve Bank of India showed on Friday.

The last time bank credit rose more than this was in the fortnight ending June 14, 2024, when it saw a 19.1% print.

This marked sustained credit demand from both consumer and corporate segments amid rising prices, people informed said. Credit growth in the previous fortnight was 17.7% while deposits grew by 12%. At the end of June 30, outstanding bank credit stood at Rs. 219.3 lakh crore while outstanding deposits were Rs. 265.4 lakh crores.

The trend also reflects a change in corporate funding preferences as they start relying more on banks for funding needs rather than borrowing from the debt market due to rising bond yields, people with knowledge said.

This latest set of numbers showed a gap of 570 basis points between credit and deposit growth, as against a gap of 530 basis points in the previous period.

One basis point is equal to one-hundredth of a percentage point.

While the gradual pick-up in credit delivery reflects broad-based improvement in key sectors, higher deposit growth is a result of higher inflows of non-resident deposits into print banks, senior bank officials said.

Bank credit growth is expected to remain healthy in FY27, supported by improving liquidity conditions, sustained government capital expenditure and stable domestic economic activity, although growth is likely to normalize gradually from the recent elevated pace, Carriage Ratings said in a note earlier this week.

Past RBI data shows that the deposit growth print for the fortnight ending June is the highest this fiscal year. It was seen at 13.5% in the fortnight ended March 21.

“RBI’s move to encourage FCNR-B deposits is expected to strengthen the liability profile of banks by improving deposit mobilization and availability of funds,” the report added.

For the fiscal year to date, credit grew by 2.7% while deposits grew by 1.2% at the end of June.