Widened gap between credit and deposit requires further liquidity boost by RBI: Report

The report said the gap between the credit and the deposit growth in the Indian banks has gone up over the last two months and it requires further liquidity boost by the central bank.

Highlighting the widening gap between credit and deposit growth, the report says that as of January 10, 2025 credit growth stood at 11.5 per cent, while deposit growth was lower at 10.8 per cent. This imbalance has increased the banking system's liquidity needs, as banks require more funds to meet the rising demand for loans.

It said "The gap that has emerged between credit and deposit growth in the last 1-2 months (11.5 per cent credit growth, 10.8 per cent deposit growth as of fortnight ended 10th Jan'25) also raises liquidity needs for banking system".

As of January 17, 2025, the core liquidity deficit (excluding government balances) stood at Rs 53,000 crore. This marks a significant shift from the surplus of Rs 2.3 lakh crore recorded at the end of March 2024. The decline in liquidity is primarily due to foreign exchange (FX) outflows and currency leakage.

In the current financial year, FX outflows have reached Rs 4.3 lakh crore, with Rs 5 lakh crore of outflows occurring since the end of September 2024.

Additionally, seasonal currency leakage, which is expected to amount to Rs 1.5 lakh crore by the end of March 2025, has further strained liquidity.

Despite these challenges, the report noted that RBI's recent measures have helped offset some of the liquidity pressures.

However, the report added that any further steps would depend on global factors and the direction of FX flows. The report says that the gap between credit and deposit growth remains a key challenge, and requires a need for careful liquidity management in the coming months.

The report also added that the central bank is unlikely to repeat a cut in the Cash Reserve Ratio (CRR) in the monetary policy to be announced on February 7th.

However, the report says that the apex bank may go for a 50 bps rate cut in two phases in February and April 2025.

The report said "We see a shallow 50bps rate cut cycle - 25bps cut in Feb'25 and April'25. With the host of durable liquidity measures announced, we do not see the need for a repeat of a CRR cut".

The report also mentions that RBI has already taken several measures to boost liquidity in the banking system so another CRR cut is unnecessary for now. (ANI)