Bank deposits fall by Rs 30k crore; credit up

On year-on-year basis, both credit and deposit rise 14%

Data released by the Reserve Bank of India (RBI) on Wednesday showed bank deposits fell by Rs 30,000 crore so far this financial year, owing to a buoyant equity market, which offered better returns. Loans, however, increased by Rs 3,000 crore.

For the fortnight ended June 13, deposits in the banking system were lower by about Rs 28,000 crore compared to the previous fortnight, while credit increased by Rs 22,660 crore.

"One of the reasons is a lot of money which used to go towards bank deposits is now coming to fixed maturity plans (FMPs). For those in the 30 per cent tax bracket, post-tax returns offered by FMPs are much better than bank deposits," said K Ramanathan, chief investment officer at ING Investment Management.

On a year-on-year basis, both credit and deposit growth was 13.9 per cent, according to RBI data. For this financial year, bankers expect credit and deposit growth to be about 15 per cent. For 2013-14, deposit growth was 15 per cent, while credit growth was 14 per cent.

Banks such as State Bank of India offer nine per cent for deposits maturing in one-two years. However, with retail inflation above eight per cent (Consumer Price Index-based inflation was 8.28 per cent in May), real returns to depositors have been negligible.

Equity market indices have been rising since February, on expectations of a stable government at the Centre, following the general elections. After the Narendra Modi-led National Democratic Alliance recorded a landslide victory in the elections, the indices hit lifetime highs. Since April, the BSE Sensex has risen 13 per cent.

Bankers say typically, in the first quarter, lenders aren't aggressive in securing bulk deposits or certificates of deposits (CDs), which have a higher cost compared to retail deposits. Some banks had pruned high-cost deposits in April, bankers said.

"Now, it is a slack season for credit; most banks have sufficient statutory liquidity ratios. Banks are going slow on bulk deposit mobilisation. I don't think banks are going slow on Casa (current account and savings account) and retail term deposits because these are important aspects of liability franchise. When credit demand is sluggish, there is no pressure on banks to mobilise high-cost deposits such as bulk deposits or CDs," said Rupa Rege Nitsure, chief economist, Bank of Baroda.
LOSING TO EQUITY

• For the fortnight ended June 13, deposits fell Rs 28,000 crore compared to the previous fortnight; credit increased by Rs 22,660 crore
• On a year-on-year basis, both credit and deposit growth was 13.9 per cent
• For 2014-15, bankers expect credit and deposit growth to be about 15 per cent
• Typically, in the first quarter, lenders aren't aggressive in securing bulk deposits or CDs, which have a higher cost compared to retail deposits