Context:
Bank credit is growing faster than deposits, widening the gap between credit and deposit growth to 5.4 percentage points by mid-June 2026. Slower growth in low-cost Current Account and Savings Account (CASA) deposits is forcing banks to depend increasingly on costlier term deposits and Certificates of Deposit.
Explanation:
- CASA deposits consist of current and savings accounts and provide banks with relatively stable, low-cost funds.
- Banks use deposits mainly to extend loans, which generate interest income.
- The credit-to-deposit ratio shows the share of deposits deployed as loans; it rose to about 82.5%, indicating tighter funding conditions.
- Savers are shifting towards mutual funds, equities and higher-yielding fixed deposits due to better returns and digital access.
- Term deposits include fixed and recurring deposits held for a specified tenure.
- A Certificate of Deposit (CD) is a short-term, negotiable money-market instrument issued by banks to institutional investors.
- Greater reliance on high-cost deposits raises the marginal cost of funds and can reduce the Net Interest Margin (NIM). NIM is the difference between interest earned on loans and interest paid on deposits and borrowings
- Repo-rate cuts temporarily reduce funding costs, but risks may increase when interest rates rise.
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Credit–Deposit Gap: Implications for Banking Stability