Bank Deposits Zoom To Rs 5,13,675 Crore
The growth in aggregate deposits of the banking system continues unabated with an increase of a whopping Rs 4,032 crore during the fortnight May 24-June 6, 1997.
Aggregate deposits stood at Rs 513,675 crore on June 6 this year.
With this, the increase in deposits in the current fiscal has been to the tune of Rs 14,112 crore.
Demand deposits have declined by Rs 4,045 crore, but time deposits have grown by Rs 14,125 crore.
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While deposit growth has been very impressive, the increase in bank credit has been a paltry Rs 1,028 crore.
Factors like reluctance of banks to lend on account of the poor financial performance posted by most corporates in 1996-97 and the decision by companies to postpone their expansion plans, have ensured that the decline in the interest rates following the April credit policy, has not spurred credit growth.
The mammoth increase in lendable resources with the banks and the miniscule increase in credit growth has led to a liquidity overhang in the banking system.
In fact, some banks were selectively refusing short term deposits from corporates.
At a time when banks were mulling the possibility of reducing their deposit rates if the trend persisted, the Reserve Bank of India (RBI) made things easier for them by cutting the Bank Rate by 100 basis points.
With the rates on deposit less than one year linked to the Bank Rate, banks automatically have to realign the deposit rates.
It remains to be seen if the cut in the rates would put the brakes on the growth in deposits.
The decline in deposit rates will facilitate reduction in lending rates.
Till date, three public sector banks have cut their prime lending rate (PLR). Both State Bank of India (SBI) and Union Bank of India (UBI) have reduced their PLR by 50 basis point to 13.5 per cent. Central Bank reduced it from 14.5 per cent to 14 per cent.
Events following the credit policy have led to a rejection of the hypothesis that a decline in lending rates will spur credit off take.
Hence, there is skepticism over whether the fresh round of cuts in PLR will actually boost credit growth.
Reserve money grew by 2.4 per cent to Rs 209,097 crore during the week ended June 6.
There was a 3.3 per cent increase in net RBI credit to the government.
The net forex assets of Reserve Bank of India grew by a paltry Rs 539 crore to Rs 101,093 crore.
As on May 31, the year-on-year growth in money supply (M3) was 16.4 per cent. On the other hand, the year-on-year growth in reserve money was 8.8 per cent on June 6.
Total foreign exchange reserves grew by $364 million to $28,583 million.
The entire increase was contributed by a rise in total foreign currency assets to the tune of by $364 million.