Banks uncertain of meeting deposit growth target

Bankers indicated meeting the deposit mobilisation target would be difficult, as consumers were preferring competing savings options over bank deposits.

The Reserve Bank of India (RBI) has projected a growth of 15 per cent in deposits for 2012-13. On the credit side, the central bank has projected a growth of 17 per cent for this financial year.

Pratip Chaudhuri, chairman of State Bank of India (SBI), the largest lender in the country, said: “I will be genuinely concerned about deposit growth. Bank deposits are getting crowded out by other competing savings products, not only because their pricing is better but also because their tax treatment is superior. And, we had perhaps expected the Direct Taxes Code to kick in, which would have provided a level playing field to bank deposits and competing products. It has not happened. So, banks will face challenges in deposits.

“Maybe a part of the challenge has to be answered by pricing. So, even if we lower deposit rates now with euphoria and relative surplus liquidity situation, going forward, as the other institutions start issuing their debt papers, we will have to see how the situation develops.”

Deposit growth has been decelerating during 2011-12, particularly the fourth quarter, reflecting the tight liquidity conditions and higher base effect. As on March 31, 2012, time deposits grew 15.4 per cent on a year-on-year basis against 18.3 per cent in the corresponding period a year ago.

Chanda Kochhar, MD and CEO of ICICI Bank, the largest private sector lender in the country, said: “The deposit number one will have to watch. It will depend on what competing products are available to customers, and the liquidity situation in the country. It is not only growth; deposit growth at what rate is also important.”

Currently, the post-tax returns on a one-year savings bank deposits fetched between 8.33 and 6.47 per cent across various tax brackets. Competing instruments offers between 9.50 and 8.49 per cent across various tax brackets.

In the annual policy meeting with senior RBI officials on Tuesday, bankers requested the central bank to consider revision in the rates on Foreign Currency Non-resident (FCNR) accounts, as the increase in interest rates on Non-resident (External) Rupee accounts (NRE) had led to migration of deposits from the former to latter instead to attracting fresh inflows.

RBI Governor D Subbarao said: “Banks have told us that migration is taking place from FCNR to NRE accounts and asked whether we could calibrate FCNR rates. At the macro level, we will have to take into account the debt concern and capital inflows.”

However, bankers remained confident they would be able to meet the credit growth targets, as sentiments are improving.

“Credit growth is more or less in line with what happened on an average last year,” Kochhar said. “This growth is coming from housing loans, car loans, commercial vehicle loans and working capital finances. New project investments are still muted. These are disbursement against past projects. I think the credit number looks achievable. It seems there will be some improvement in sentiments (after the rate cut).”

Of course, just an improvement in sentiment on the interest rate side does not necessarily guarantee that investment activities will go up, but it is one of the enabling factors.”

During 2011-12, advances by banks recorded a year-on-year growth of 19.4 per cent against 21.5 per cent a year ago.