However, new funds through FCNR (B) deposits will help banks temporarily bridge this gap. SBI economists expect deposit mobilization to shift towards the 5-year bucket as most of the flows are in that category.
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The report said the shift in demand for working capital loans is visible from 2021 which was a period of multiple supply side shocks like Covid pandemic, Russia-Ukraine war, disruption in supply chains and now the West Asia conflict.
SBI research analysed data comprising deposits, credit and crude oil prices using quarterly data of the last 10 years. The results showed that supply-side shocks are transmitted asymmetrically across banking aggregates, with bank credit growth responding more strongly than bank deposits growth.
“The combined contribution of crude oil and food inflation shocks to credit variance rises from 23.48% in the first quarter to 31.19% by the tenth quarter, compared with an increase from 6.26% to 17.60% for deposits,” SBI Research said.
The report attributes crude oil shocks to be the dominant source of supply-driven variation in credit, with food inflation important for deposits over longer horizons.”Supply shock invariably creates liquidity gaps through wedge between deposit and credit growth and indicates one of the many dimensions of geopolitical risk to banking system in India,” SBI Research said.Also Read: Govt explores linking land records with ULI for faster farm credit
Post-2022, working capital loans such as cash credit, overdraft, demand loans, export credit have registered relatively faster growth vis-à-vis overall credit and term loans, coinciding with shocks like COVID-19, Russia-Ukraine War, supply chain disruptions and now West Asia conflict.
Loans to individuals have also slowed with the share of long-term housing loans in overall retail loans declining. “With the shift to the new tax regime, people are now repaying their loans faster. NBFCs are also aggressively mobilizing housing loans,” SBI Research said.
On the deposit side, traditional markets in large metropolitan regions have saturated and there is a shift in bank deposits towards semi-urban and rural with increasing women empowerment and women centric schemes. Preference for term deposits has risen across broad institutional sources like nonfinancial and financial corporations away from households with a shift in household savings behavior.
“Rise of term deposits has seen shift in contractual maturity with share of 1–3-year bucket rising as banks strive to balance asset and liability with shift to external benchmark rate regime…FCNR (B) deposit mobilization could result in some shift towards the 5-year bucket as most of the flows are in that category till now,” SBI Research said.