According to recent data released by the Reserve Bank of India (RBI), bank credit and deposits saw growth in February 2021 that surpassed January 2021, and even exceeded the pre-pandemic data from February 2020.
Bank Related Data by RBI
As per the data from the RBI, at the end of February 2021, bank credit had grown by 6.63% to Rs.107.75 lakh crore, a notable increase compared to February 2020’s figure of Rs.101.05 lakh crore. Simultaneously, bank deposits also grew by 12.06% to Rs.149.34 lakh crore, another significant jump from the previous year’s Rs.133.26 lakh crore in February 2020.
Reason for Credit Growth
The surge in bank credit can be largely attributed to a rise in retail loans, which comprise a wide variety of lending types. Retail loans encompass personal loans such car loans, mortgages, signature loans and credit cards, as well as certain business loans. Currently, the overall retail credit growth is at 9%, a number set to increase further, led by mortgages which make up 51% of retail loans, and supported at the back end by unsecured loans, such as cards/personal loans, and vehicle loans.
Understanding Bank Credit
Financial institutions and banks generate income from funds they lend out to their clients. This money comes from client deposits or investments in specific vehicles like certificates of deposit (CDs). Bank credit consists of the aggregate amount of funds that financial institutions provide to individuals or businesses. In essence, it involves an agreement where banks loan funds to borrowers.
Bank Credit in India
In India, bank credit denotes loans granted by scheduled commercial banks (SCBs) to various sectors of the economy. It is divided into food credit and non-food credit. Food credit refers to loans given by banks to the Food Corporation of India (FCI) primarily for procuring food grains, occupying a small share of total bank credit. The bulk of bank credit is non-food credit which includes credit to different sectors such as agriculture, industry, services, in addition to personal loans. RBI collects data on bank credit monthly.
About Bank Deposits
Bank deposits involve placing money into banking institutions for safekeeping, made into accounts like savings, current, and money market accounts. The account holder retains the right to withdraw deposited funds, as outlined in the terms and conditions stipulated in the account agreement.
Bank Deposits in India
In India, there are four major types of bank deposits: current account, savings account, recurring deposits, and fixed deposits. Current accounts offer lower restrictions on withdrawals and transactions, primarily crafted to facilitate smooth business transactions. In contrast, savings accounts provide high liquidity and enjoy mass popularity, albeit with cash withdrawal and transaction limits. Recurring deposits are a special type of term deposit that require fixed monthly deposits, without any premature withdrawals. Lastly, fixed deposits offer guaranteed returns, offering a higher interest than regular savings accounts over a broad range of tenures from 7 days to 10 years.
