Deposit growth improves, but more needed to meet RBI target

Banks must garner Rs 1.5 lakh cr in last fortnight this yr to meet 18% growth target.

Deposits grew at a pace of 16.58 per cent over a year as on March 11, as compared to 16.45 per cent the earlier fortnight. In a fortnight, banks were able to garner Rs 56,517 crore worth of deposits due to attractive interest rates.

The Reserve Bank of India (RBI) had projected an annual growth rate of 18 per cent in deposits and 20 per cent in bank advances. As on March 11, bank credit grew at 23.2 per cent.

While the growth in advances has been better than expected, growth in deposits was limited by high inflation. Also, interest rates offered on fixed deposits were low for a major part of the current financial year.

“The real interest rate was negative for most of the year. Very high inflation did not allow allocation of savings to bank deposits, as interest rates offered by banks on fixed deposits were also low at around seven per cent,” said Vaibhav Agarwal, vice-president, research, Angel Broking. He expects deposit growth to be 17-18 per cent by the end of March.

Inflation has been high through the year. The Wholesale Price Index (WPI) for February was at 8.31 per cent, while it was 8.23 per cent in January, 9.41 per cent in December and 8.08 per cent in November. RBI expects inflation to be at eight per cent in March.

Bankers, on the other hand, are confident of achieving the 18 per cent growth projection.

“It should be achievable, as there is usually a brisk offtake in the last fortnight of a financial year. Also, there will be huge roll-overs lined up in the last 10 days, which the banks can re-price and retain the existing portfolio,” said S Govindan, general manager, Union Bank of India.

“Every bank will deploy serious marketing strategy at the month end, so that they can show higher deposit growth in the balance sheets for the financial year 2010-11,” said a senior official with Central Bank of India. He said there would be huge deposit mobilisation in the last week of this month.

Deposits in the banking system were Rs 44 lakh crore at the end of March 2010. Banks will have to garner around Rs 1.5 lakh crore more in the last fortnight this year if the 18 per cent growth target is to be achieved over last year’s figure. Deposits as on March 11 were at Rs 51 lakh crore.