Amid lagging deposit growth and constrained liquidity, government spending and the surplus of SLR (statutory liquidity ratio) with banks, will help support credit and economic growth, according to State Bank of India Chairman Dinesh Kumar Khara.

“There are a couple of levers of liquidity. One of the levers is government spending. Almost 2.5-3 trillion of the government’s balance is with the RBI. That remains unspent,” Khara said at the SBI Banking and Economic Conclave on Wednesday.

While in November, government spending has started picking up. Going forward, banks also have access to their excess SLR “which will be utilised to ensure that there is no liquidity challenge in meeting the growth needs of the economy”, he added.

As per the latest RBI data, credit grew by 16.8 per cent y-o-y as of November 4, whereas deposits were higher by 8.2 per cent. However, commercial banks’ incremental deposit growth for the fortnight that ended on November 4 at ₹1.7 lakh crore, outpaced incremental credit growth — which stood at ₹424 crore — for the first time in many months.

Credit-deposit balance

Khara dismissed concerns of a slowdown in deposit growth dampening banks’ ability to lend, saying that the Indian GDP is growing at around 6-7 per cent which will also “pump money into the system”, in addition to the existing 8-9 per cent already being seen in deposits.

“If CD (credit-deposit) ratio goes high, then there could be a challenge for banks. They would have to raise resources at high cost which is happening now. Some of the banks are willing to go to the extent of giving 7.5 per cent for deposits. This will curtail their ability to lend at competitive rates,” he said.

Saying that an ideal credit-deposit ratio is usually around 75 per cent, Khara added that SBI is still at around 65 per cent. He said that the bank is currently growing sufficiently to fund its credit growth and so far hasn’t drawn from its excess SLR of around ₹3.85 lakh crore.