Bank deposits remain robust, credit offtake falls

Bank deposits showed robust growth over the August 12-26 fortnightfortnight while credit offtake declined in the same period on account of high lending rates.

According to the Reserve Bank of India (RBI), deposits grew by Rs 17,650 crore to Rs 55 lakh crore for the period. However, on a yearly basis, the growth stood at 17.8 per cent for the same period. Banks had increased interest rates on deposits by 200-250 basis points across tenures in the last six months. As a result, lucrative deposit rates have attracted customers to park their money to get higher returns.

On the other hand, bank advances fell by Rs 3,600 crore on a fortnightly basis as loans became more expensive. However, bank credit grew by 20.6 per cent on an annual basis during the fortnight. The credit offtake stood at Rs 40 lakh crore on the same date. RBI has raised the key policy rates 11 times since March 2010 to tame inflation, which led to an increase in the cost of funds for banks. As a result, lending rates have also gone up.

Financial services firm Nomura said high interest rates and elevated inflation were hurting consumer sentiment. “Growth in consumer durable loans outstanding deployed by scheduled commercial banks fell sharply to 8.9 per cent annually in July from 22 per cent in June, suggesting consumer sentiment is turning negative in India,” Nomura said in a note.

Bankers are expecting the credit growth to remain slow in this quarter. “With the current interest rates being so high, the credit offtake is expected to remain sluggish at least till September,” said Ravi Kumar, chief financial officer, Bank of India.

Recently, most banks increased their base rates by 50 basis points in response to hikes in policy rates by the central bank.