"Credit offtake is just not picking up. We cannot accept deposits at this stage since we would be sitting on huge surplus funds," said a senior executive of a public sector bank.

Aggregate deposits during the first quarter of the current year have grown by 0.7 per cent (Rs 4,586 crore). In the corresponding period in 1997-98, deposits grew by 2.3 per cent (Rs 11,853 crore). Time deposits, which grew by Rs 18,244 crore during the first quarter of 1996-97, have shown a growth of just Rs 5,403 crore during the fortnight ended June 5, 1998.

Bank credit, on the other hand, fell by only 0.1 per cent during the period up to June 5, 1998, compared with a 0.8 per cent fall during the first quarter of the last financial year. For thefortnight ended June 5, 1998, aggregate credit fell by Rs 458 crore. Though food credit increased by Rs 897 crore, non-food credit fell by as much as Rs 1,355 crore.

IndusInd Bank, the largest new private sector bank and probably the most aggressive one in the lending business, has admitted to a flat credit growth during the first quarter. "Credit growth has been flat. We are discouraging depositors by offering them unattractive rates of interest," said Rajiv Butalia, vice-president, planning & resources, IndusInd Bank.

Even TimesBank has stopped renewing certificates of deposit (CDs) after their maturity in order to bring down liability costs. "We are, however, not turning away depositors at the retail level," said Pradeep Pain, executive director, TimesBank.

With corporates refusing to borrow from banks at even prime lending rates (PLRs), they have been forced to subscribe to commercial paper (CP) and non-convertible debenture (NCD) issues of corporates at sub-PLR rates. This has put severe pressureon the net spreads of banks.

During the current financial year up to June 5, 1998, the CP subscriptions of banks have risen to Rs 3,755 crore from Rs 2,105 crore as on March 27, 1998, marking an increase of Rs 1,650 crore. Subscription to bonds, debentures and preference shares during the same period increased by Rs 844 crore.

During the first quarter of 1997-98, while public sector banks as a whole witnessed a negative growth in credit offtake, the new private sector banks bucked the trend by recording a 10 per cent growth. However, during the first quarter of fiscal 1998-99, it is unlikely that the new private banks will be able to sustain the momentum of growth.