Bank credit shows sign of picking up

Bank credit showed signs of recovery as the latest data released by Reserve Bank of India (RBI) showed that credit grew by Rs 56,972 crore in the fortnight ended June 28. Deposits grew more than credit at Rs 1,39,509 crore during the same period.

On the year on year basis both credit grew by 13.7% while deposits grew by 13.8%. RBI’s projection for this year’s credit and deposit growth is 15 and 14% respectively.

Total credit stood at Rs 54.15 lakh crore while deposits at Rs 70.9 lakh crore. First half of a fiscal is generally considered slow. Banks expect pick-up in credit to be faster from October amid the festive season.

In the previous fortnight bank credit as well as deposits had decreased. Few banks have recently cut their base rate due to which credit growth is seen picking up. The reduction came into effect after Finance Minsiter P Chidambaram asks public sector banks to review their base rates. The reduction is expected to induce consumer demand for funds.

Most banks however haven’t reduced the retail deposits yet as they fear depositors might turn to other asset classes which give them better returns than banks fixed deposit. However, according to analysts, banks will be cutting the deposit rates soon as inflation is coming down.

RBI in this calendar year has reduced repo rates by 75 basis points to 7.25% and cash reserve ratio (CRR) by 25 basis points to 4%.    

The street is expecting the central bank to maintain a status quo on key policy rates in the first-quarter review of the monetary policy on July 30. However, there are few experts who are of the view that RBI may cut the CRR further which would result in further monetary transmission.