Bank lending outpaces deposit growth so far this quarter --------------Business Standard
MUMBAI, MARCH 6:
Credit growth in the banking system continues to outstrip deposit growth in the fourth quarter so far.
In the fourth quarter so far (from January 1 to February 22), deposit accretion at Rs 88,062 crore did not keep pace with bank credit, which rose by Rs 1,03,318 crore, according to Reserve Bank of India’s Scheduled Bank’s Statement of Position.
C-D RATIO
The incremental credit-deposit ratio is at 117 per cent, clearly pointing to the pressure in the banking system to garner resources.
For every Rs 100 deposit that a bank mobilises, it has to invest Rs 23 in government securities and park Rs 4 with the RBI as cash reserve ratio, leaving it with Rs 73 to make loans.
But once the incremental C-D ratio goes over 100 per cent, then the bank has to raise resources from avenues other than deposits.
Bankers say currently the credit demand is coming mostly from small and medium enterprises and retail segments.
Due to the current economic uncertainty, large corporates are holding back on investments.
Deposit accretion has slowed as inflation-adjusted returns are not attractive, pushing retail investors to invest in gold, which is seen as a hedge against inflation.
In the latest fortnight ending February 22, the banking system saw a credit growth of Rs 26,200 crore.
Deposits, however, declined by Rs 9,200 crore.
In the previous fortnight ending February 8, banks saw a credit growth of Rs 50,610 crore and deposit growth of Rs 44,999 crore.
BANKS HIKING RATES
To stem the deposit outflow, banks have started increasing interest rates.
This comes even as the financial year is expected to end.
Loan growth above RBI projection; deposits fall
The central bank has projected 16% credit growth & 15% deposit growth for FY13
Bank deposits grew a sluggish 12.73 per cent on year-on-year basis till February 22, while loans rose 16.25 per cent during the same period, latest data from the Reserve Bank of India (RBI) showed.
During the fortnight, the banks disbursed new credit of about Rs 26,000 crore, while they lost deposits of about Rs 10,000 crore. The central bank has projected 16 per cent credit growth and 15 per cent deposit growth for this financial year.
Falling deposit growth has forced banks to raise the deposit rates to attract depositors, who are otherwise investing in gold and real estate, seeking better returns.
Rising gold import has been a matter of concern for the government as well as RBI as it widens the country’s current account deficit.
State Bank of India (SBI) had recently hiked deposit rates by 25 basis points (bps) for all deposits above the maturity of one year.
During the fortnight, the banks disbursed new credit of about Rs 26,000 crore, while they lost deposits of about Rs 10,000 crore. The central bank has projected 16 per cent credit growth and 15 per cent deposit growth for this financial year.
Falling deposit growth has forced banks to raise the deposit rates to attract depositors, who are otherwise investing in gold and real estate, seeking better returns.
Rising gold import has been a matter of concern for the government as well as RBI as it widens the country’s current account deficit.
State Bank of India (SBI) had recently hiked deposit rates by 25 basis points (bps) for all deposits above the maturity of one year.
Another large public sector lender Punjab National Bank had also raised the deposit rates.
Other lenders might also follow the suit as the deposit growth is two percentage points below RBI’s projected levels. Most banks have already cut lending rates after RBI announced 25-bp cut in repo and cash reserve ratio in January.
A further rate cut, as expected by bankers, may deter monetary transmission immediately as higher deposit rates will put pressure on banks’ margins and profitability.
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