Bank credit is projected to moderate this financial year on account of a slowdown in unsecured personal loans and a high credit-deposit (CD) ratio, which measures the extent of loans out of the deposits raised.

The Reserve Bank of India (RBI) has for some time now asking banks to bring down their elevated CD ratio as their deposit growth trailing that of loans. According to the latest RBI data, while bank loans rose 13.6 per cent, the growth in deposits was relatively lower at 10.9 per cent.

A Motilal Oswal report said, after a healthy growth performance over fiscal 2022-24, systemic loan growth is likely to moderate in 2024-25, led by continued moderation in unsecured retail and slower corporate credit off-take.

The brokerage added that the elevated CD ratio for the system is also limiting banks’ ability to pursue credit growth.

It expects the systemic credit growth to moderate to 12.5 per cent in 2024-25.

As per RBI data, the non-food credit growth stood at 15.4 per cent in 2022-23 and 15.8 per cent in the following year.

The brokerage has also cut its credit growth estimates for private banks and public sector banks (PSBs) by 210 basis points and 112 basis points for the current fiscal, respectively.

Its analysts added that during the April-June quarter, many banks reported modest trends in deposit growth, which is directly affecting their ability to pursue credit growth.

Further, few private banks have reduced their credit growth forecasts, while PSBs have largely maintained the growth outlook.

“The CD ratio remains elevated at 79.1 per cent, indicating banks’ need to focus more on increasing their deposit base. Banks are expected to face tighter competition in deposit rates and may slow credit growth to manage the high CD ratio,’’ the brokerage noted.