BS Reporter |
Mumbai
April 9, 2012
Last Updated at 14:11 IST
Bank deposit growth rate falls despite higher interest rates
Deposit growth is down to a four-month low level of 13.7% in the first reporting fortnight of March
For the first time in six years, fresh bank deposits have fallen over its previous year. A Hindu Business Line story says that deposits for year ended March 2012 saw incremental deposits of Rs 6.95 lakh crore as compared to Rs 7.15 lakh crore for the previous year. Deposits have been steadily rising from Rs 195,782 crore in 2004-05 to Rs 715,143 crore in 2010-11.
What is even more striking is that deposits have fallen at a time when interest rates have been high. In fact banks have steadily revised their rates upward throughout the year. Reserve Bank of India (RBI) has increased freed saving rates and rates on NRI deposits. Though banks have been prompt in raising rates as soon as the ceiling was lifted, it was no enough to increase deposits.
Even within the pool of money in the bank, there is a shift from lower interest bearing products to higher ones. Small savings schemes have suffered an outflow of Rs 7,000 crore.
This explains the reason for increase in small saving rates by the government. From April 1, 2012 rates on small saving instruments have been increase by 50 basis points (0.5%).
A Business Standard report says that deposit growth is down to a four month low level of 13.7% in the first reporting fortnight of March, reflecting unattractiveness of rates offered by banks.
Credit deposit ratio has touched an all time high level of 78%. Any number over 69.5% (net of CRR and SLR deposits) means that banks are utilising other sources of funds that their deposits in order to lend.
Rising inflation and a tight liquidity situation has compelled banks to hike interest rates in order to attract deposits. The Business Line report says that about 20 banks have raised their deposit rates in the last two months.
Given this scenario it is very unlikely that banks will be able to reduce interest rates on deposits in near future. And if risk-free returns are offering decent yields, money will not flow in equities.
Banks however, will be under stress on account of deteriorating asset qualities and pressure on their net interest margins.
