Credit growth surge in last fortnight of Dec

Credit-deposit gap widens, almost 400 basis points now

Banks credit growth showed a sharp rise at the end of December, with loans worth Rs 65,000 crore disbursed in last fortnight, compared with Rs 3,500 crore during the first fortnight of the same month.

According to bankers, the quarter-end pressure to meet targets has resulted in the surge of credit offtake. Similarly, deposit growth, which fell in the previous fortnight, rebounded to Rs 43,000, the latest data release from the Reserve Bank of India (RBI) showed.

On a year-on- year basis, credit growth was 15 per cent till end-December, while deposit growth lagged at 11 per cent.

RBI had projected 16 per cent growth in advances and 15 per cent growth in deposits for the current financial year. The gap in credit and deposit growth, which is almost 400 basis points now, has widened significantly during 2012.

Deposit growth has been lagging credit growth for the last two years, giving rise to wider asset liability mismatch for banks.

The sluggishness in deposit growth is mainly due to high inflation for close to three years and alternative investment opportunity in non-financial assets like real estate and gold.

Credit growth in the first nine months of the financial year was at 7.1 per cent, compared with 10.5 per cent last year, and deposit grew at six per cent, compared to nine per cent in the same period.

Deposit growth fell sharply, particularly in the third quarter, growing just above one per cent, compared to 3.6 per cent growth in the same period last year.

Due to the falling deposit growth, banks consistently borrowed over Rs 1 lakh crore from the RBI’s daily liquidity auction facility window, much above the central bank’s comfort zone.

Credit growth in the third quarter was 4.5 per cent, compared with 5.2 per cent in the same period last year.