Deposit growth at nine-year low

Dec 14 2012, 01:20 IST
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SummaryGrowth of just 12.76% in fortnight ended Nov 30 portends worsening liquidity.

The banking sector could soon see a worsening liquidity situation that could crimp credit offtake if the slowing deposit growth is anything to go by.

The sector's deposit growth has hit a nine-year low in the fortnight ended November 30 where it grew 12.76%, RBI data showed. The last time deposit growth dipped below 13% was in December 2003.

The RBI has projected a deposit growth of 15% for banks for the current financial year.

Outstanding deposits of banks stood at R64,42,835 crore as on November 30, a growth of just 5.4% for the financial year.

If one takes into account deposits raised in the last week of March so as to even out the seasonal surge towards March 31, the growth comes to 9.13% for the financial year so far.

To reach the projected deposit growth of 15%, banks will have to raise another R3.5 lakh crore over the next four months.

Deposit growth has weakened over the last two years for banks as rising inflation lured investors to other products, primarily gold and real estate. With returns from deposits dipping, most customers switched to other financial products as well.

Public sector banks have also been hit hard by a government diktat that caps bulk deposits and certificates of deposits to just 15% of banks' total deposits. While retail deposits have been growing at a healthy pace for most banks, public sector banks will have to shed bulk deposits, thereby impacting their growth.

CD issuances have also been slowing down over the last three months. According to RBI data, barring the spurt in CD issuances during September, banks raised not more than R10,000-15,000 crore worth of CDs every month.

According to Bank of America-Merrill Lynch, the deposit growth is not sufficient to fund credit needs. Therefore, the RBI needs to cut the CRR to infuse liquidity. Credit growth has continued to outpace deposit growth, keeping the credit-deposit ratio high.

Non-food credit grew 16.76% on year to an outstanding of R48,51,275 crore in the fortnight ended November 30, the RBI data showed. Banks' credit-deposit ratio was around 75% as on November 30. The low deposit growth could raise the case for a cut in the CRR by the RBI at the mid-quarter policy review on Tuesday.

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