Bank Credit Growth Up, But Continues To Underperform Growth In Deposits
Leading public sector banks have lowered some of their term deposit rates as credit growth remains sluggish and liquidity in money markets have improved. The lenders who reduced deposit rates recently include Bank of Baroda, Bank of India, and Andhra Bank reduced some of their term deposit rates. State Bank of India, ICICI Bank and Central Bank of India had revised its earlier last month. “We have been able to bring down interest rates on deposits because we hold surplus investments in government securities. The expectations of a reduction in interest rates have resulted in an improvement in the prices of bonds and we can liquidate our investments at a profit,” said C VR Rajendran, chairman, Andhra Bank. He added that there was an expectation that Reserve Bank of India will signal lower interest rates in its forthcoming monetary policy in December.
Data released by Reserve Bank of India shows that bank credit growth has improved to 11% as on October 17 but continues to underperform growth in deposits which have risen by 12.6%. A fortnight earlier bank credit growth was struggling at 9.7% even as deposit growth was in excess of 13.4%. Sectoral data shows that advances to businesses are growing in single digit and it is largely the personal segment that is driving credit growth for most banks. Bank credit to industry grew 6% by Rs 142700 crore year on year up to September 19. As against this bank credit to personal loan segment grew 13% (Rs 1254 crore) during the same period.
According to Rupa Rege Nitsure, Chief Economist & General Manager, Bank of Baroda although deposit rates have moved down marginally this may not translate into a drop in lending rates. “Banks are conscious of their capital constraints, their interest margins have been under pressure and risk premium on advances continues to remain elevated. Although inflation has moderated it is too early to say whether the trend can be sustained”. She added that she did not expect a rate cut in December and RBI too has been sending cautious signals by selling bonds whenever yields have fallen in recent days.
One of the reasons why liquidity is expected to remain easy in India is continued monetary easing by the European and Japanese Central Banks. “This implies that global investors will continue to hunt for attractive carry among the fundamentally strong emerging markets. We reckon that India will be in a strong position to attract foreign flows if it continues to pursue structural policy adjustments,” said Kotak Economic Research in a report here today.
Source : The Times of India (Bangalore)