Market Divided On Crr Cut

The numbers, however, suggest that the system is flush with liquidity.

Aggregate deposits with all scheduled commercial banks increased by Rs 27,926 crore (6.44 per cent) during the year up to September 27. In the same period last year, deposits had increased by Rs 11,740 crore (3.03 per cent). On a year-on-year basis, deposit growth has clocked a respectable 15.84 per cent. On the other hand, the stock of total bank credit has actually declined by Rs 3,066 crore (-1.2 per cent) in the current year, while during the same period last year, it had recorded a jump of 10,288 crore (4.8 per cent).

 

Food credit during the year up to September 27 declined in absolute terms by Rs 1,356 crore whereas non-food credit dropped by Rs 1,710 crore over levels recorded at the beginning of the year.

In the circumstances that the demand-supply position of funds with banks has been totally reversed, it is not surprising, therefore, that bank investments should have gone up.

Whereas last year till the end of September, banks had ploughed in an additional Rs 6,964 crore (4.7 per cent) in investments, the pressures of excess liquidity are obvious in their higher investments of Rs 12,245 crore (7.4 per cent) this year.

Broad money supply (M3) increased by Rs 32,559 crore (5.38 per cent) in the current financial year up to September 13, compared with Rs 13,364 crore (2.49 per cent) in the same period last year. However, this should not divert attention from the fact that the annual growth rates are roughly at the same level: 16.4 per cent. There is a critical difference though: last year the stock of currency with the public was growing at a rapid pace of 7 per cent (over March figures) and this was interfering with both the growth of aggregate deposits and the money multiplier. This year, the growth of currency with the public has dropped to 4.3 per cent, thereby reverting to secular trends.

Yet another difference this year lies in containment of expansion in reserve money. This actually declined by Rs 8,946 crore (-4.6 per cent) as on September 20, compared with an explosive growth of Rs 11,322 crore (6.7 per cent) in the same period last year. The level of monetisation of the deficit is also much lower this year. As on September 20, the monetised deficit was lower at Rs 5,662 crore, compared with Rs 9,688 crore at the same time last year.

A moderation in credit to the central government has been aided by the fact that the RBI has had to lend little support to the banking system this year - refinance levels are down, and due to low call money rates, banks have had no reason to take recourse to RBI refinance. RBI credit to banks is down Rs 14,788 crore from March 31 level. These present a curious mix of numbers, susceptible to any interpretation.