Deposits shrink by Rs 26,000 cr

After surging around Rs 2 lakh crore in the last fortnight of December, bank deposits fell Rs 25,742 crore during the 14-day period ended January 14.

According to the Reserve Bank of India (RBI) data, deposits grew 16.43 per cent on a year-on-year basis till January 14. Credit off-take dropped Rs 43,327 crore during the fortnight and grew 23.6 per cent on a year-on-year basis.

In the third quarterly monetary policy report, RBI had raised concerns over the widening gap between credit and deposit growth. RBI asked banks to bring down their incremental credit-deposit ratio or face action. RBI has projected 20 per cent credit growth and 18 per cent deposit growth for 2010-11.

The incremental non-food credit-deposit ratio rose to 102 per cent by end-December due to the gap between credit and deposit growth. In the corresponding period of the previous year, the ratio was 58 per cent.

To lure customers, banks have raised deposit rates by up to 250 basis points in the past few weeks.

“We recently increased deposit rates, so the full impact will be seen towards January-end. Our daily monitoring has shown a slight increase,” said a senior executive of State Bank of India.

Despite lower deposit growth, bank investments in mutual fund instruments went up from Rs 13,000 crore to Rs 70,000 crore. Their investments in government securities or securities that qualify for statutory liquidity ratio went up by Rs 16,251 crore during the fortnight.

Generally, banks withdraw from mutual funds at the end of every quarter to meet capital adequacy norms. They, however, put back the money in the beginning of the quarter.

“The shrinkage in outstanding deposit and credit is normal in the first fortnight following a burst of activity at the end of the quarter. This should not be taken as reversal of growth. The tempo of business activity is up and will gather momentum in the closing months of the financial year,” said a senior Bank of India executive.