Festive season sees loans grow faster than deposits

Loans grew faster than deposits during the fortnight ended September 9, indicating an increase in credit demand during the festive season. The growth in loans has been slow so far this financial year, owing to steep rate rises by the Reserve Bank of India (RBI).

According to recent data released by RBI, credit growth during the period was Rs 29,433.37 crore, a growth of 0.7 per cent over the previous fortnight. On a year-on-year basis, loans grew 20.4 per cent till September 9.

On the other hand, deposits saw a growth of only Rs 12,935 crore, a rise of 0.2 per cent over the previous fortnight. On a year-on-year basis, deposits grew 17.5 per cent.

“We expect the growth in advances to sustain in the remaining part of this financial year. For instance, we are focusing on sectors like agriculture and mid-corporates. For the farm sector, bank credit is still the cheapest funding option available at this moment,” said Bank of Maharashtra Chairman & Managing Director, A S Bhattacharya.

RBI had, last week, raised interest rates for the 12th time in 18 months to fight high inflation. It had also signalled more rises may follow, confounding expectations of the tightening cycle coming to an end and putting it at odds with global peers, which are focused on reviving weak demand.

“We have certainly started seeing an increase in demand for credit now, although it is a gradual pick-up,” said a senior official with a large state-run bank, on the condition of anonymity. “We are hopeful it would gather pace, as the festive season progresses.”

Typically, credit growth sees an increase during the festive season starting August and extending till November, since people require more funds to buy new cars, consumer durables and houses.

Amid the series of rate rises, the central bank has also scaled down its credit growth projections for the current financial year from 19 per cent to 18 per cent. Banks have also lowered their credit growth projections.

“There is still a fair amount of consumption demand in the Indian economy and this would drive loan growth on a year-on-year basis. High interest rates may affect demand in rate-sensitive sectors like real estate or large-ticket loans. There may be some impact on the small and medium enterprise segment,” said Pralay Mondal, country head (retail assets & credit cards), HDFC Bank.

Bankers said the borrowing decisions of mid-sized companies were not guided by interest rates alone. “They want funds at the right time and are willing to pay interest on these loans. These factors would ensure we maintain the growth in our advances. In retail, especially in housing loans, there is a slowdown in demand. This is because home buyers are expecting a fall in property prices, and delaying their purchase decisions,” Bhattacharya said.