Depositors start spending ahead of festive season; banks’ liquidity surplus hit by these factors

As festive season knocks around the corner, consumers have increased spending, leading to a moderation in bank deposits in the fortnight ending-September 25. While the bank deposits increased by 10.5 per cent on-year in the fortnight, it moderated in comparison to the previous fortnight. The moderation on fortnightly basis indicates that with the nearing of the festive season, the depositors have started spending, said a report by Care Ratings. On the other hand, the overall credit growth in the banking sector continued to moderate for the fortnight ending-September 25. The credit growth decelerated to 5.3 per cent and 5.1 per cent during the last two fortnights, compared to the previous year’s level of 10.4 per cent and 8.9 per cent respectively. 

Slow credit growth is reflecting weak demand and risk aversion in the banking system due to the Covid-19 pandemic, the report added. Given the concerns mounting on the asset quality, the banks are also being very selective with their credit portfolios. The low credit growth against comparatively high deposits has helped the banks to maintain surplus liquidity into the system. 

However, it is also estimated that the liquidity surplus will continue to be weighed down by the upcoming government borrowings. The liquidity surplus in the banking system for the fortnight ended-September 25 stood at Rs 2.83, compared with Rs.4.02 lakh crore as on August 28. The central government borrowings of Rs 60,000 crores and state government borrowings of Rs 23,728 crores, along with statutory dues (TDS payments) limited the banking system liquidity surplus during the fortnight.

Meanwhile, the share of the industrial segment continued to be the highest in the total outstanding credit followed by the services and retail segments. While large industries accounted for 83.4 per cent share in the total outstanding credit to industries, NBFCs continued to form the largest part in the total credit outstanding to the service sector at 31.2 per cent.