Banks May Face Liquidity Challenges Says FICCI-IBA Survey

Mumbai: With credit growth outpacing deposit growth, banks could face liquidity challenges, said the nineteenth round of the FICCI-Indian Banks Association (IBA) survey released on Wednesday. Bankers said that raising deposits to keep pace with the loan growth and keeping the credit cost low remains their top agenda.

Customers’ search for higher-yielding investments and the ability to lock those interest rates for a longer time has led to a shift from low-cost to high-cost deposits, thereby increasing deposit costs for lenders, the bankers said. More than two-thirds of respondent banks (67 per cent) reported a decrease in the share of CASA deposits in total deposits in the current round of survey. Term deposits have picked up pace as reported by the respondent banks due to higher/attractive rates. Eighty per cent of the participating nationalised banks reported a decrease in share of CASA deposits during the first half of 2024 while over half the private sector bank respondents reported a decrease in CASA deposits.

The FICCI-IBA survey was carried out for the period January to June 2024. A total of 22 banks including public sector, private sector and foreign banks participated in the survey. These banks together represent about 67 per cent of the banking industry, as classified by asset size.

The survey findings showed that long-term credit demand has seen continued growth for sectors such as infrastructure, metals, iron and steel, engineering. “Infrastructure is witnessing an increase in credit flow with 77 per cent of the respondents indicating an increase in long-term loans. This could be attributable to the government’s capital expenditure push for the infrastructure sector.” The survey suggests that the outlook on expectation for growth of non-food industry credit over the next six months is optimistic with 62 per cent of the participating banks expecting non-food industry credit growth to be above 12 per cent.

Even while remaining sanguine about asset quality, most of the participating bankers identified sectors such as Textiles, Infrastructure and Food Processing as sectors that continue to show a high level of NPAs.