The untold story of bank deposits

Indian banks never had it so good.

- SOUMYA KANTI GHOSH

The banks and the stakeholders like the government of India and the Reserve Bank of India (RBI) have worked assiduously in the last decade to ensure a stable, resilient and adequately capitalised banking system that is a sine qua non for financing India's growth story. For the decade ended FY24, Indian banks' consolidated profit was ₹3.2 trillion, a four-fold jump over FY14.

Deposits and Credits have jumped by 2.7 times during the period, with the asset quality now among the best along with all operating ratios.

In terms of capitalisation, in dollar terms, the market capitalisation of Bank Nifty has jumped by a staggering 2.9 times since the pandemic.

Against this background, there have been stories expressing concern that deposits in the banking system have significantly fallen behind and that household savings in bank deposits are being crowded out as a result of financialisation of household savings. For the record, there are currently 2,650 million deposit accounts in the system against 400 million credit accounts. Both these concerns need to be fact checked.

Firstly, the numbers suggest that the incremental deposit growth at ₹61 trillion has outpaced the incremental credit growth at 59 trillion since FY22. Hence, deposit growth has actually outpaced credit growth.

What is thus actually important is whether such quantum of deposit growth is enough to fund the credit requirements of an economy expanding at 8 per cent and at what price it is being mobilised.