Credit growth slows; deposit mobilisation remains sluggish

On y-o-y basis, both credit and deposit grew by 13.6% a year

Bank credit fell by Rs 21,000 crore in the fortnight ended June 14, according to data by the Reserve Bank of India (RBI). During the same period, banks lost deposits worth about Rs 16,000 crore, RBI data showed.

On a year-on-year (y-o-y) basis, both credit and deposit grew by 13.6 per cent year. In the fortnight ended on May 31, credit growth was 14.1 per cent while deposit growth was at 13.4 per cent. This is the first time in this financial year that loan growth is falling below 14 per cent, y-o-y.

RBI’s projection for this year’s credit and deposit growth is 15 and 14 per cent, respectively. Total credit stood at Rs 53.8 lakh crore, while total deposits stood at Rs 69.5 lakh crore as of June 14.

According to bankers, the first half of the financial year normally sees sluggish credit pick up and disbursement grows only in second half post monsoon.

On the other hand, deposit growth continues to be sluggish even if banks have largely left interest rates on retail deposits untouched. A few of them, however, have reduced the rates on bulk deposits.

In the first week of this month, the State Bank of India had reduced bulk deposit rates by 25 basis points for selected tenors. Most banks, however, haven’t reduced retail deposits yet on concerns that depositors might turn to other asset classes that give better returns than bank fixed deposits.

Bankers also blame high deposit rates, which, according to them, have tied their hands for reducing the lending rates. Banks fear it could have an adverse impact on their net interest margins (NIMs), if they reduce lending rates without deposit rates coming down.

In 2013 (calendar year), RBI has reduced repo rates by 75 basis points to 7.25 per cent and cash reserve ratio by 25 basis points to 4 per cent.