Banks post better deposit growth vs loans on high rates

Indian banks fetched more deposits than loans since the start of the financial year in April as high deposit rates prompted individuals to park funds with the lenders.

As of August 10, deposits with banks since March-end increased 2.8 percent to 62.8 lakh crore, while credit growth was muted at 0.4 percent to 47.2 lakh crore, data from the Reserve Bank of India showed on Wednesday.

"Deposit rates being offered to the retail customers are better than other instruments," said T.M. Bhasin, chairman and managing director at state-run Indian Bank.

Bhasin said deposits also grew from the farm sector because of the summer crop hitting the market.

 

In the fortnight to August 10, deposits rose 0.6 percent and credit 0.4 percent.

Banks have been unwilling to reduce lending rates across sectors despite a sharp cut in the policy repo rate by the central bank in April due to high deposit rates. High loan rates has kept loan demand low, analysts say.

Last week, finance minister Palaniappan Chidambaram urged state-owned banks to increase lending to boost the manufacturing sector, which has been caught up in the economic slowdown.

"The focus in the meeting (with Chidambaram) was for banks to augment credit delivery to sectors like the small and medium enterprises. Getting into the busy season from September, most banks will come up with innovative schemes, which will push credit growth higher," Bhasin said.

Traditionally, banks launch schemes with lower loan rates for the housing and auto sectors to woo borrowers in the second half of the fiscal year.