Credit growth slows in April, deposit growth remains flat

Banks enter a slack season as credit growth takes a back seat in the first month of the new financial year.

According to the data released by the Reserve Bank of India (RBI) on April 22, bank advances fell Rs 37,407 crore over a fortnight.

“Credit pickup is usually slack in the first few months of each financial year, as corporate bodies are busy with their audits,” said an official of a public sector bank. He said the pickup was likely to take place towards the July-September quarter.

However, as compared to the same period last year, advances were up 22 per cent.

Going forward, higher interest rates may pose a risk to credit growth. In response to the policy rate rise by the Reserve Bank of India (RBI), banks have started raising their base rates. Punjab National Bank, IBDI Bank, Oriental Bank of Commerce are some of the lenders that have increased base rates by 50 basis points to 10 per cent. Base rates have now touched double digits making funds costlier for the corporate bodies as well as retail borrowers.

Last financial year, RBI had raised rates eight times, to which the banks did not respond with base rate hikes of the same quantum. According to RBI norms, banks have to review their base rates at least once every quarter. State Bank of India (SBI), India’s largest lender, raised its base rate by 25 basis points to 8.5 per cent before the policy announcement.

Another rate rise seems to be on the cards, as SBI Chairman Pratip Chauduri said on the policy day that the bank might revise it by the end of this month, after assessing the impact of the earlier rise. On the other hand, deposit growth remained flat over the fortnight ended April 22, 2011. However, on a yearly basis, deposit growth improved to 18 per cent.