Deposit growth jumps 16.4% at Dec quarter end

Rise of 3.57 per cent recorded in a fortnight.

Aggressive deposit rate hikes and bulk deposits towards the end of the third quarter helped the banking system push up deposit growth. Latest data released by Reserve Bank of India (RBI) shows that deposits grew by Rs 17,1601.71 crore, taking the annual rate of growth to 16.45 per cent in the fortnight ended December 31, 2010.

This could be indicative of more and more people preferring bank fixed deposits as an investment avenue in response to the recent rate hikes. In the third quarter, interest rates on deposits have gone up by almost 250 basis points due to cash-starved banks competing with each other to attract funds.(Click for table & graph)

But analysts point out this may be due to wholesale deposit growth. “This could be a combination of a rise in both bulk deposits as well as retail deposits,” said Suresh Ganapathy, head of financial research team, Macquarie Securities. Usually, banks resort to taking up short-term bulk deposits towards the quarter end to shore up their balance sheets. “If this is so, there will be huge repayments in the next fortnight,” he added.

A senior official from State Bank of India said there was an element of window dressing, especially in the current accounts of companies. “They take in credit and for a short term this money (loan money) moves to their current account. Hence both assets and liabilities move up close to the quarter end,” he added.

But this time it seems both retail and bulk deposits have helped. “Usually at the quarter end, deposits tend to bulge. But even if that is removed, the deposit growth has been robust,” said S Govindan, general manager, personal banking and operations, Union Bank of India.

SBI has raised term deposit rates by over 100-150 basis points across different categories. “This has helped us to manage business till the end of March and our dependence on bulk deposits would be minimal,” said the official.

Going forward, one can expect further rate hikes. “Deposit rates could go up by another 25 to 50 basis points in this financial year,” said Ganapathy.

RBI has estimated a deposit growth of 18 per cent for financial year 2010-11 in its annual monetary and credit policy.