Positive 2024 outlook for bank credit offtake amid improved deposit growth

Bank credit offtake: CareEdge Ratings, in a recent report, painted a positive picture for the outlook of bank credit offtake in 2024, coupled with expectations of enhanced deposit growth. Ending on January 12, 2024, saw a credit offtake, surging by 20.3 per cent year-on-year to reach Rs 159.7 lakh crore, primarily influenced by the impact of the HDFC-HDFC Bank merger and substantial growth in personal loans.

Excluding the merger impact, the report reveals a credit growth rate of 16.1 per cent year-on-year for the fortnight, slightly trailing last year's 16.5 per cent growth. Concurrently, deposits experienced a year-on-year growth of 13.1 per cent for the same fortnight, inclusive of the merger impact, with expectations pointing towards an improvement in deposit growth throughout 2024.

Factors affecting credit offtake

The optimistic outlook for credit offtake in 2024 is attributed to factors such as economic expansion and a continued push for retail credit, backed by the momentum of increasing digitalization, notes the report. However, a mild cooling-off might be observed in unsecured personal loans and NBFC advances. The current capital levels for banks and NBFCs are deemed comfortable, as per the report.

While the report points towards a positive credit landscape, it also highlights potential challenges such as higher interest rates, inflation, and global uncertainties related to geopolitical issues, which could exert pressure on credit growth.

The credit-deposit (CD) ratio has been maintaining a trend below 80 per cent since September 2023, witnessing a noteworthy uptick of 44 basis points, reaching a three-year high at 79.9 per cent in the fortnight ending January 12, 2024.

Although deposits have showcased a relatively steady performance since the COVID-19 pandemic, the report underscores that credit growth has significantly outpaced deposit growth in recent years, outlining the dynamics of the banking sector's evolving landscape.

(with PTI inputs)