Loan growth above RBI projection; deposits fall

The central bank has projected 16% credit growth & 15% deposit growth for FY13

Bank deposits grew a sluggish 12.73 per cent on year-on-year basis till February 22, while loans rose 16.25 per cent during the same period, latest data from the Reserve Bank of India (RBI) showed.

During the fortnight, the banks disbursed new credit of about Rs 26,000 crore, while they lost deposits of about Rs 10,000 crore. The central bank has projected 16 per cent credit growth and 15 per cent deposit growth for this financial year.

Falling deposit growth has forced banks to raise the deposit rates to attract depositors, who are otherwise investing in gold and real estate, seeking better returns.

Rising gold import has been a matter of concern for the government as well as RBI as it widens the country’s current account deficit.

State Bank of India (SBI) had recently hiked deposit rates by 25 basis points (bps) for all deposits above the maturity of one year.  

SBI Chief Financial Officer Diwakar Gupta had said the move was taken keeping in mind the liquidity pressures in March. Generally, bank credit spikes in the last month of the financial year when lenders scout to meet year-end targets.

Another large public sector lender Punjab National Bank had also raised the deposit rates.

Other lenders might also follow the suit as the deposit growth is two percentage points below RBI’s projected levels. Most banks have already cut lending rates after RBI announced 25-bp cut in repo and cash reserve ratio in January.

A further rate cut, as expected by bankers, may deter monetary transmission immediately as higher deposit rates will put pressure on banks’ margins and profitability.