Refrain from year-end window dressing: RBI

The Reserve Bank of India (RBI) has come down heavily on banks that went for aggressive expansion of the top line around March-end to meet yearly targets. In the last week of March, bank deposits had risen by a whopping Rs 2 lakh crore, while loan growth stood at Rs 93,000 crore. Also, more than a fifth of the deposits collected in 2011-12 came in during this period.

As a result of the mad rush for deposits, mostly by public sector banks which control two-third of the market, short-term rates went through the roof. Rates on three-month certificates of deposit went up to 11.75 per cent, 100-150 basis points (bps) higher than what it was a month before.

According to bankers, RBI wanted a more steady growth of deposit and credit through the year, rather than a skewed one.

Bankers attributed the reason for a sharp increase in deposit growth at the end of the year to sluggish deposit mobilisation in 2011-12, although retail deposit rates hovered around 9.5 per cent.

“High inflation during the most part of the year, which had made real return to the depositors negative, had an adverse impact on resource mobilisation,” said a banker. He added issuance of tax-free bonds and tax-savings bonds by corporate entities, which offered attractive yields to savers, had also channelised public deposits away from banks.

The spike in deposit and credit growth in the last week of March had helped deposits to grow by 17 per cent on a year-on-year (y-o-y) basis (till March 30), which was less than 14 per cent a week earlier. Similarly, banks recorded loan growth of Rs 93,000 crore in the last week of March, resulting in y-o-y loan growth of 19.3 per cent, higher than RBI’s projection of 16 per cent.

However, both deposits and credit fell drastically once the new month commenced, RBI data showed.

Deposits dropped about Rs 17,000 crore, dragging the annual growth rate from 17 per cent to 14 per cent, again, in the first week of the new financial year. Similarly, annual credit growth came down from 19.3 per cent to 18.73 per cent within a week.

During the Annual Monetary Policy announcement, RBI also said banks must aim to reduce the variation in interest rates on bulk and retail deposits of similar maturities. During the end of the last financial year, the gap between retail and corporate bulk deposit rose to as high as 350 bps.