“Banks’ credit-deposit ratios raise concerns about NBFCs’ ability to raise funds,” he said.
By definition, the credit-deposit ratio (CD ratio) is a tool that measures what proportion of a bank’s deposits are lent out as loans.
The rating agency’s report adds that increased regulatory oversight will lead to higher compliance costs. However, it stresses the need for increased oversight and notes its importance for the stability of the sector.
“There is growing debate about the need to monitor the end use of funds by governments. NBFC“Additionally, smaller NBFCs and fintechs face challenges on the liability side, underscoring the need for strategic solutions to address these challenges,” CarEdge said in the report.
Recently, a report by the State Bank of India (OSE) highlighted the continued upward trend in credit growth in Indian banks, which is outpacing deposit growth. The SBI report stated that “the latest fortnightly credit and deposit growth figure shows that credit growth continues to outpace deposit growth, albeit moderated from last year’s growth of 16.2 per cent (June 2023 YoY).” Specifically, for the fortnight ended July 12, 2024, the report noted that credit growth for all scheduled commercial banks stood at 14 per cent YoY, while deposit growth was reported at 11.3 per cent.
This trend persists even as Indian households have substantially increased their investments in mutual funds and stocks.
On August 10, the Union Finance Minister Nirmala Sitharaman He again called on banks to focus on their core business and develop innovative products to increase deposits.
Addressing a press conference after a regular post-budget meeting with the Central Board of Directors from the Reserve Bank of India (Reserve Bank of India), the Finance Minister said: “The Reserve Bank and the Government are repeatedly telling banks to pay attention to their core business activities.”
He also said he would raise the issue again with the banks.
Supporting the minister’s comments, RBI Governor Shaktikanta Das also expressed concern over the issue and said the central bank has alerted banks on the issue several times, most recently in the earlier policy on August 8.
NBFCs play a crucial role in the financial ecosystemgrowing at a compound annual growth rate (CAGR) of 14 percent.
Among banks, NBFCs and AIFIs (All India Financial Institutions), NBFCs have held a credit share of 21-24 per cent from FY17 to FY24, the report said.
According to the report, banks account for approximately 70 percent and IFIs the remaining 5-7 percent.
The rating agency further anticipated that the NBFC sector is likely to grow by 17 per cent in FY25.
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