Deposits shrink, loans surge in Dec 1 fortnight

Rs 38,000-cr fall in deposits, Credit expand by Rs 45,000 cr.

Bank deposits fell for a consecutive fortnight, while credit expanded by a little over Rs 45,000 crore, according to the latest data published by the Reserve Bank of India. The growing credit-deposit growth gap, on which the central bank has already raised concern, has widened further.

Deposits fell by Rs 38,000 crore during the fortnight ended December 17, registering 14.7 per cent year on year growth, far below the central bank’s projection of 18 per cent for 2010-11. Bankers said the fall in deposit base was due to low rollover of certificates of deposit (CDs) in this month. According to dealers, Rs 1.13 lakh crore worth of CDs were due for renewal in December.

The chief financial officer of a private bank said in this tight liquidity condition, it has been very difficult for banks to get CDs, especially the big-ticket ones, rolled over on maturity. Credit, on the other hand, registered growth of 23.7 per cent on year as on December 17, higher than the central bank’s projection of 20 per cent for the financial year.

RBI recently raised concern on the widening gap between credit and deposit growth. “Our concern when we did the liquidity calculation and on the basis of which we did the SLR action (cut in banks’ statutory liquidity ratio), is that (tightness) is structural… there is a mismatch between the rate of growth of credit and deposit and that is more of an enduring factor in liquidity constraints,” Subir Gokarn, deputy governor of RBI, said recently.

“We should see deposit increasing as people respond to higher interest rates and we will watch over the next few weeks if there is a substantial response,” he had said, referring to the recent increases in deposit rate by banks. Banks have done so by between 50 and150 basis points. State Bank of India, the country’s largest lender, is now offering 8.5 per cent for 555 days, while ICICI Bank, the largest private sector bank is offering eight per cent for 590 days.