Credit growth outpaces deposit growth
Credit grew by nearly 17% while deposit up 13.5%: RBI
Bank credit grew by 16.85% while the deposits up by 13.42% year-on-year (Y-o-Y) in the fortnight ended November 16. The banks disbursed new credit worth Rs 34,771 crore in the fortnight while they lost deposits worth Rs 25,789 crore, according to the latest data released by the Reserve Bank of India (RBI). In the previous fortnight, the banks had accumulated new deposits worth Rs 47,211 crore while they disbursed new credit of Rs 43,813 crore.
The RBI has expressed concern on slow mobilisation of the deposit growth. The central bank has projected the deposit growth of 15% and revised the target of credit growth to 16% from earlier 17%.
In the first one and half month of the present quarter, the bank deposits fell by worth Rs 1,005 crore while credit growth was Rs 85,138 crore, RBI data showed.
Last year in the same period, banks had accumulated Rs 21,820 crore while disbursed new credit of Rs 39,002 crore. The credit-deposit gap has widened this year. This is one reason that the banks are borrowing more than Rs 1 lakh crore from RBI's liquidity adjustment facility (LAF).
Shubhalakshmi Panse, chairperson and managing director, Allahabad Bank, said: “The widening credit – deposit gap is not alarming as the credit growth on y-o-y basis is looking high as last year there wasn’t much credit demand due to slowdown. Most public sector banks have offloaded the high-cost deposit therefore the deposit growth would be less as compared to advances."
However, the country’s largest lender State Bank of India has been facing the problem of excess liquidity. According to Pratip Chaudhuri, chairman, SBI, the bank has accumulated deposits of about Rs 1 lakh crore this fiscal and was able to deploy only about Rs 40,000 crore leaving about Rs 60,000 crore of extra liquidity with the bank.
“People have withdrawn more cash this festival season [making liquidity situation tight] contrary to what we were expecting,” RBI Deputy Governor HR Khan told reporters couple of days ago at the sidelines of an event here.
He also admitted that there is a slight reduction in deposits and increase in advances creating the liquidity pressure.
Currently, the banks are offering the interest rate between 7.5% and 9% for the deposits whose tenure is one year and above while for less than one year they are offering the deposit rate 6.5–8% making it unattractive preposition for the depositors at a time when inflation is high.
“There is a need to provide better returns to depositors” M Narendra, chairman and managing director, Indian Overseas Bank said. When the government spends the money it will come into system so there’s a lag between money movement which is temporary, he added.
The depositors are instead investing in the gold and real estate where the rate of return is much higher. Higher demand has lead gold price to increase about 12% in last one year while RBI’s all India housing price index grew 24.1% last fiscal.
“The credit always pick up in second half which is the busy season,” Narendra said adding one of the reason why deposit growth is lagging is that the entire public and private savings are coming down which is the function of many things including government surplus. This is a temporary problem and it will improve as with the growth of the economy,” he said.