The Reserve Bank of India (RBI) has seen increasing dependence of some private and public sector banks on certificates of deposit (CDs) to meet the resource gap. | |
| Demand for CDs remained strong during the second quarter of 2006-07 as banks continued to supplement their efforts at deposit mobilisation to support sustained credit demand, RBI said in a report on macroeconomic and monetary developments. |
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| The amount of outstanding CDs increased from Rs 56,390 crore at the end of june 2006 to Rs 63,864 crore by September 15, 2006. CDs constituted 4.3 per cent of aggregate deposits of issuing banks in September same as at the end of June. |
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| The typical discount rate for three months to 179-day maturity CDs was 7.37 per cent as on September 15, 2006, up from 6.87 per cent at the end of June 2006. As on October 13, 2006, the year-on-year increase in aggregate deposits was 20.7 per cent (Rs 3,93,849 crore) against 18.6 per cent (Rs 2,98,229 crore) a year earlier. |
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| Banks' lending to the commercial sector was up 30.5 per cent (Rs 3,76,105) as on October 13, 2006 from a year earlier. The growth in credit to commercial sector as on October 14, 2005 was 31.8 per cent (Rs 2,97,903 crore) a year earlier. |
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| With the unprecedented continuation in the growth of credit, banks have been finding it difficult to meet resources requirement for funding demand for loans, particularly retail credit. |
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| The situation is made worse with banks' aggregate statutory liquidity ratio (SLR) holding dropping to 29.8 per cent as on October 13, 2006. |
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| Many banks have SLR holdings close to the minimum required 25 per cent of net demand and time liabilities, as they sold government securities over the last couple of years to fund rise in demand for loans. |
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| Industrial confidence takes a knock |
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| The level of confidence in industrial performance for October-December 2006 has dipped slightly over the previous quarter, but is still higher than a year earlier. |
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| The Reserve Bank of India's (RBI) business expectations index for October-December 2006 has declined by 0.9 per cent over the previous quarter. |
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| The assessment about the overall business situation for July-September 2006 had also shown a marginal decline in the level of confidence over the previous quarter, but also was higher than a year earlier. |
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| "Responses to the survey suggest a marginal decline in expectations for the overall business situation, financial situation, exports and profit margins during October-December 2006 vis-a-vis July-September 2006. On the other hand, production, order books, capacity utilisation and employment are expected to show an improvement during October-December 2006," RBI said in its report on macroeconomic and monetary developments, released today. |
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| The working capital finance requirement is expected to increase, while the availability of finance is expiated to show some decline, according to RBI's industrial outlook survey. |
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| RBI said although some surveys showed a dip in business confidence and expectations, the buoyancy in manufacturing and services sector activities coupled with the recovery in domestic stock markets and positive investment climate suggested that the recent growth momentum in the Indian economy was likely to be maintained in 2006-07. |
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