Deposit growth stays ahead of credit expansion

Growth in bank deposits continued to outpace the credit disbursal tempo in December, reflecting the economic slowdown and the moderation in demand for loans.

According to data by the Reserve Bank of India (RBI), the year-on-year growth in deposits was 17.86 per cent at the end of the week (December 2). Deposits stood at Rs 5710,061 crore. Banks reported a growth of 17.7 per cent in loan disbursals, while outstanding loans stood at Rs 4,235,420 crore.

In November, deposits rose 18 per cent, compared to the year-ago period. Credit growth was capped at 17.6 per cent.

RBI has projected a deposit growth of 17 per cent and a credit growth of 18 per cent by March-end. However, trends suggest otherwise. Bankers said beside a slowdown in the economy, the high-interest rate regime made borrowers put investment plans on hold. Thus, credit pick-up has moderated in the current financial year.

Banks are also cautious in credit disbursement to avoid a rise in risks of defaults. Sectors like steel and textiles are showing signs of stress and non-performing assets have grown in the first two quarters, said a senior public sector bank executive.

With the moderation in credit growth, banks are parking a substantial part of deposits in government securities, more than what they have to invest. The banking system holds government securities to the tune of 29 per cent of net deposit liabilities.