After falling for a fortnight, the growth in bank deposits and advances improved towards the end of the second month of the current financial year, according to data from the Reserve Bank of India (RBI).
Over the two weeks ending June 1, banks were able to accumulate about Rs 80,000 crore of deposits, whereas loan disbursements were up by around Rs 64,000 crore. In the previous fortnight, deposits had shrunk by Rs 2,100 crore while credit was up by Rs 4,000 crore.
On an annual basis, bank deposits grew 14.4 per cent and advances by 18.3 per cent over the corresponding period last year.
RBI has projected a growth rate of 16 per cent in deposits and 17 per cent in bank credit for the current financial year.
Bankers said the reduction in lending rates led to some flow of retail credit, though demand for project loans was muted. In May, a number of banks had cut their respective base rates after the announcement of a 50 basis points (bps) cut in policy rates by RBI a month before.
Large banks, however, kept base rates unchanged and reduced the spreads on selective loan segments.
Banks had also effected a reduction in deposit rates on short-term maturities.
“Deposit growth is subdued because banks are not soliciting fresh money due to weak credit demand,” said a senior treasury official from a public sector bank.
Ajay Marwaha, executive vice-president and head of trading at HDFC Bank, said poor demand and lack of availability of funds were contributing to the slowdown in credit growth.
RBI is expected to announce a second round of cuts in the policy rate in the mid-quarter monetary policy review on Monday. This may help boost credit growth.
Sonal Varma, economist at Nomura, said RBI would, in a tight liquidity scenario, have to deliver more repo rate cuts to ensure the same level of policy transmission.
“If RBI wants to support growth, then a 100 bps reduction in lending rates would require a more than 100 bps cut in policy rate,” she added.