Despite rising interest rates, global uncertainties and supply-chain issues, loan growth in FY2023 hit an 11-year high.  This has come on the back of robust demand for personal loans, growth of non-banking financial companies (NBFCs) and higher working capital requirements due to inflation.

Credit offtake grew 15% for the fortnight ended 24 March 2023 versus 9.6% a year ago, according to data from ratings agency CARE.

In absolute terms, credit outstanding stood at Rs 136.8 lakh crore until 24 March 2023, up from Rs.17.8 lakh crore a year ago.

This growth has come despite the RBI raising the repo rate (the rate at which it lends money to commercial banks) to 6.50% from 4% since May 2022.

"The credit growth has been robust in FY23 driven by lower base of the last year, unsecured personal loans, housing loans, auto loans, higher demand from NBFCs, higher working capital requirements due to elevated inflation from select industries and depreciation of Indian rupee," said analysts at CARE.

While the demand has been broad-based, personal loans and demand from NBFCs have been the key driver, they added.

Credit offtake, however, could slow in the current fiscal ended March 2024 even as rising interest rates slow global economic growth.

The World Bank recently lowered its India GDP forecast for 2023-24 to 6.3% from 6.6 per cent. The RBI has forecast a GDP growth of 6.5% for this fiscal.

Any further interest rate hikes in India could also impact credit offtake, according to the CARE analysis.

Deposit growth has been a laggard in the previous fiscal, compared to the high credit offtake.

For the fortnight ended 24 March, deposit growth was at 9.6% year-on-year. In absolute terms, deposits stood at Rs 180.4 lakh crore for the fortnight ended 24 March 2023.

This is leading to intense competition among the banks to raise interest rates on deposits. The RBI could also raise policy rates, though it pressed the pause button in its latest monetary policy. A widening gap between credit and deposit growth and lower liquidity in the market could also contribute to deposit rates climbing further.

"With liability franchise gaining importance, due to a high credit-deposit growth gap, bank deposits rates have risen, and deposit growth would continue to be monitored," according to CARE analysts.

Credit growth generally began picking up in second half of 2021-22 financial year and surpassed deposit growth in January-March 2022, said CARE. Since then, it has continued the momentum.

With deposit growth lagging credit growth, banks have partly met the funding gap by mobilising Certificate of Deposits (CDs). A CD is a fixed-income instrument issued against funds deposited in a bank for a specific period. These are governed by RBI and the commercial bank will pay interest on it based on the deposit duration and amount.

The outstanding CDs stood at Rs 3 lakh crore as of 24 March 2023, compared with Rs 1.5 lakh crore a year ago, according to the CARE analysis.

"Banks are keeping their CD issuance elevated to meet short-term requirement amid lower liquidity and focusing on shoring up the deposits to meet robust credit demand," CARE Ratings said in its report.