Bank deposit growth outpaces credit

Happens for the first time in FY 12, November loan growth slowest this financial year.

The deposit growth of the country’s banks outpaced credit expansion for the first time this financial year in November, on the back of high deposit rates and a sluggish loan demand. While deposits expanded at 18 per cent from a year ago, the credit growth was capped at 17.6 per cent, according to data released by the Reserve Bank of India (RBI). This was the slowest rate at which bank advances have grown in this financial year.

The higher deposit accretion has enabled the banks to invest in government securities at more-than-required levels. According to RBI norms, banks should invest a minimum 24 per cent of the net demand and time liabilities in government debt as the statutory liquidity ratio, or SLR. RBI data show that banks’ investments in government securities were higher by around 17 per cent as on November 25, compared with same period last year. Only recently had the central bank’s deputy governor, Subir Gokarn, said banks were maintaining a 29 per cent SLR.

 

Banks continue to keep deposit rates attractive even when credit growth was not picking pace. “The liquidity condition is not very comfortable,” said a senior official of a Mumbai-based private sector bank. “So, the banks have kept the deposit rates high despite lower credit growth.” Banks are borrowing around Rs 1 lakh-crore daily on an average from RBI’s repo window since the last two weeks.

Also, because of higher interest rates on term deposits, demand deposits are seeing negative growth. While term deposits grew by Rs 8.8 lakh crore in a year as on November 25, demand deposits fell by Rs 22,500 crore in the same period.

RBI has projected a deposit growth of 17 per cent and credit growth of 18 per cent by the end of March 2012. But the current trend suggests otherwise. “Credit growth is expected to slow down to 15-16 per cent, because of the overall economic scenario,” says Vaibhav Agrawal, vice-president (research) of Angel Broking. All the same, the deposit growth may be 17-18 per cent because of higher rates, he adds. As an investment avenue, term deposits “may attract” funds amid weak performing equity markets.