Banks clock a third of FY12 credit growth in Feb & Mar

Deposit growth slumps to decade-low RBI quizzes banks on year-end credit spike

Growth in bank advances, which remained muted most of the year, picked up in February and March. Banks added Rs 2.6 lakh crore, or a little more than a third of the financial year’s total of Rs 6.6 lakh crore of loans, in the past two months of 2011-12, data released by the Reserve Bank of India (RBI) on Wednesday showed.

However, the year-end phenomenon of spikes in credit growth drew flak from RBI. Bankers said the central bank had raised the issue at the pre-policy meeting on Wednesday.

As on March 23, annual credit growth stood at 16.98 per cent, above the central bank's revised projection of 16 per cent. RBI had scaled down the year-end credit growth projection twice. The central bank had increased the repo rate by 175 basis points in April-October 2011 to tackle high inflation and inflationary expectations, and banks had responded by increasing lending rates. So, the demand for credit was hit during the initial part of financial year 2011-12.

RBI has not changed the repo rate since October. “Overall expectations that there would not be any rate increase further helped improve industry sentiment. Companies could go ahead with their plans and borrow in the latter part of the financial year," said a senior public sector banker.

Deposit growth fell to 13.4 per cent as on March 23. RBI had projected deposit growth of 17 per cent in the third-quarter review of monetary and credit policy. The year-end deposit growth is the lowest since financial year 2002-03. Then, too, the year-and growth in deposits stood at 13.4 per cent.

"Though banks had increased deposit rates, both domestic savings and industrial balances dipped during the year. Companies preferred using their own resources, instead of borrowing at high rates," said a senior executive of a public sector bank. In March, banks had offered high deposit rates to mobilise short-term resources, as these were paying 11.5 per cent for raising funds in bulk for three months.

“Banks wanted to boost their top lines to meet year-end targets. As a result, short-term rates increased by more than 100 basis points in one month,” said the chairman and managing director of a public sector bank.