Deposit-credit growth gap widens further, to weigh on RBI's mind

Credit growth rises 23 per cent in fortnight, deposits grow just 15 per cent.

In what would be a big concern for the Reserve Bank of India (RBI) while taking decisions in the second mid-quarter review of the monetary policy tomorrow, deposit growth further declined while credit growth rose during the last fortnight.

According to latest RBI data, scheduled commercial banks, including regional rural banks, recorded 22.99 per cent credit growth at the end of December 3 on a year-on-year basis. This is above RBI’s projection of 20 per cent credit growth for the financial year.

Banks disbursed Rs 36,499 crore in the fortnight ended December 3. Deposits grew 14.97 per cent during the fortnight ended December 3. This is against RBI’s target of 18 per cent for this financial year.

Banks are trying to woo depositors by increasing rates. Over the last fortnight, most banks have raised deposit rates by 25-175 basis points. Deposit rates had been hovering in the range of seven-eight per cent for the past few months.

RBI Governor D Subbarao had expressed concern over low deposit growth. Credit growth has risen in the current financial year due to demand from telecom companies for funding new licences and a number of road, power and steel projects.

“Appetite for credit in the system is good. Public sector units are looking for funds to expand. There is a temporary gap between credit and resource growth. Banks have increased deposit rates and we will be able to create a surplus,” said M Narendra, chairman and managing director, Indian Overseas bank.

Despite a drop in deposit growth, investments in government securities went up by Rs 7,740 crore during the fortnight.

RBI has raised its key rates six times this year. On November 2, RBI raised the repo rate by 0.25 per cent to 6.25 per cent and the reverse repo by 0.25 per cent to 5.25 per cent to anchor inflationary expectations.