BS Reporter / Mumbai Dec 27, 2012, 00:01 IST
The wedge between credit and deposit growth has persisted, with bank deposits falling for the fortnight ended December 14. On a year-on-year basis, deposits grew 13.3 per cent to Rs 64.3 lakh crore but fell 0.1 per cent sequentially, shows data released today by the Reserve Bank of India ( RBI).
RBI has projected deposit growth of 15 per cent for the current financial year. However, many bankers feel RBI’s projection might not be achieved.
Despite this, most banks have been cutting their deposit rates as the interest rate cycle turns southward. Pratip Chaudhuri, chairman of the largest lender, State Bank of India, agrees lower rates are making it difficult to attract deposits.
On Monday, a few banks did reverse the trend by raising deposit rates by 25-35 basis points in select maturities. Federal Bank raised these by 25 bps in domestic term deposits of one to three years, to nine per cent. Dena Bank increased it in the one year to less than two years bucket by 35 bps, to 9.1 per cent. The former said it had done so because of asset liability management. Dena Bank said it wished to align deposit rates with those of other major banks. However, according to analysts, the rise is also due to low accretion of deposits.
Credit growth was 16.3 per cent on a year-on-year basis to Rs 49,62,649 crore for the fortnight ended December 14. During the fortnight, it grew 0.07 per cent from Rs 49,59,062 crore earlier.
RBI data shows credit growth has failed to improve in the second half of the financial year till date.
This is primarily due to slowing economic growth and high interest rates. RBI has revised the credit growth projection downwards to 16 per cent for this year, from the 17 per cent projected in April and July. The revision was made in the second-quarter review of monetary policy, on October 30.
http://www.business-standard.com/india/news/bank-deposit-growth-still-sluggish/496908/
26 DEC, 2012, 04.37PM IST, REUTERS
Indian banks' loan, deposit growth slower on weak GDP
Indian banks' advances and deposits grew at a slower pace in the first three quarters of the current fiscal year ending in March 2013, compared with the same period a year earlier, data from the central bank showed on Wednesday.
As of Dec. 14, banks' advances grew 5.7 per cent, slower than 7.8 per cent in the year-ago period, while deposits grew 5.6 per cent, compared with 6.5 per cent.
"Credit growth is linked to the nominal GDP growth. If we are on a slower GDP growth path, naturally credit and deposit growth will be slower," a senior official with a private bank who did not want to be named said.
The official expects the full-year credit growth to be 14-16 per cent. In its second quarter review of the monetary policy, the Reserve Bank of India cut its credit and deposit growth projection by 1 per centage point each to 16 per cent and 14 per cent, respectively.
India's economy grew 5.3 per cent from a year earlier in the July-September quarter, below the 5.5 per cent posted for the three months ending in June.
As of Dec. 14, banks' advances stood at Rs 49,626.49 billion ($905.6 billion), up 0.1 per cent from two weeks ago, while deposits were down by 0.1 per cent at Rs 64,339.34 billion.
27 DEC, 2012, 01.04AM IST,
Financing US debt: Foreign buyers may have to rethink their positions as dollar loses value
By Satyajit Das
On November 8, 2010, German finance minister Wolfgang Schauble told the Wall Street Journal: "TheUSA lived off credit for too long, inflated its financial sector massively and neglected its industrial base."
US government debt currently totals around $16 trillion. The government holds around 40% of the debt through the Federal Reserve, Social Security Trust Fund and other government funds. Individuals, companies, banks, insurers, pension funds, mutual funds, state or local governments hold 25%. Foreign investors, China, Japan, oil exporting nations, Asian central banks or sovereign wealth funds, hold 35%.
Historically, America has been able to run large deficits because it had no problems finding buyers of US Treasuries. Given its reserve currency and safe haven status, US dollars and government bonds were cornerstones of the portfolios of foreign lenders, especially central banks with large forex reserves.
Emerging countries, such as China, fuelled American growth, supplying cheap goods and providing cheapfunding, by recycling export proceeds into US bonds, to finance the purchase of these goods. It was a mutually convenient addiction — China financed customers creating demand for exports and America received the money to buy cheap Chinese goods. Purchases of US Treasuries with export proceeds also kept the local currency down relative to the US dollar aiding competitiveness.
Asked whether America hanged itself with an Asian rope, a Chinese official told a reporter: "No. It drowned itself in Asian liquidity."
Given the quantum of US debt and credit concerns, foreign investors may become less willing to finance America. Japanese and European investors, struggling to finance their own government obligations, may not have the funds to invest. Given its magnitude and the lack of political will to deal with the problem of debt and public finances, the US is now deploying its FMDs, 'financial extortion', 'monetisation' and 'devaluation,' to finance its requirements.
In a form of financial extortion, existing investors, like China, must continue to purchase US dollars and government bonds to avoid a precipitous drop in the value of existing investments.
In 2010, Yu Yongding, a former adviser to China's central bank, mused: "I do not think US Treasuries are safe in the medium- and longrun... Only God knows how much value that China has stored in the US government securities will be left in future when China needs to run down its reserves." In 2011, a Chinese government spokesperson could only "hope the US government will earnestly adopt responsible policies to strengthen international market confidence, and respect and protect the interests of investors."
Debt monetisation — printing money — is another strategy. The US Fed is already the inhouse pawnbroker to the government, purchasing government bonds in return for money. Expedient in the short term, monetisation debases the currency and sets off inflation. The absence of demand, industrial over-capacity and the unwillingness of banks to lend have meant that successive rounds of 'quantitative easing' have not resulted in higher inflation. But the longer-term risks remain.
Monetisation is inexorably linked to devaluation of the US dollar. The now officially confirmed zero interest ratepolicy and debt monetisation is designed to weaken the dollar. John Connally, treasury secretary under president Nixon, observed: "Our dollar, but your problem."
Despite bouts of dollar buying, the currency has weakened over the last two years. On a trade-weighted basis, the dollar has lost around 20% against major currencies since 2009. It has lost around 30% against the Swiss franc, 25% against the Canadian dollar, 35% against the Australian dollar and 20% against the Singapore dollar.
As the dollar weakens, it improves America's external position. Foreign investments and overseas income gain in value. But the major benefit is in relation to debt owned by foreigners. Devaluation reduces the value of its outstanding debt, making it easier to service it.
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