Rise in deposits beats credit growth in FY13

The RBI had projected credit and deposit growth at 16% and 15% respectively

The government’s attempts to restrain public sector banks from rushing for business towards the end of the financial year to meet targets proved futile, with a third of the deposits in 2012-13 accumulated in March.

According to data released by the Reserve Bank of India (RBI), for the year ended March, deposits stood at Rs 10.27 lakh crore, recording a rise of 17.4 per cent year-on-year. In March, banks mopped Rs 3.75 lakh crore.

Total bank credit in 2012-13 stood at Rs 7.8 lakh crore, a rise of 17 per cent. Of the total credit, Rs 2.7 lakh crore was disbursed in March. This is the first time since 2009-10 that annual deposit growth outpaced credit growth. For 2012-13, RBI had projected credit growth of 16 per cent and deposit growth of 15 per cent.

The finance ministry had taken several steps to restrain government-owned banks, which control 70 per cent of the market, from rushing for funds towards the end of the financial year. In March 2012, a rush for funds had resulted in a steep rise in short-term rates, with rates for three-month certificates of deposit exceeding 12 per cent. This had increased the cost of funds for banks and exerted pressure on margins.

As a result, the ministry had told banks to ensure their bulk deposits (including certificates of deposit) didn’t exceed 15 per cent of total deposits. Banks that didn’t adhere to this were asked to do so by March 31. Later, however, the ministry had given banks more time to comply with the norm. This year, short-term rates exceeded nine per cent, owing to a fall in interest rates.

The finance ministry had also asked banks to quote bulk deposits at more than the card rate. A few years ago, the practice of having a deposit growth target for public sector banks was done away with, and this was replaced by a targeted growth in current account and savings account deposits, which were low-cost in nature.

After a similar rise in March last year, both credit and deposits (outstanding) had seen a fall in the first fortnight of April. Bankers expect a similar situation this year, too.