Banks credit-deposit ratio drops to 2006 levels in May

Written by Sajan C Kumar | Chennai | Updated: May 28 2009, 04:02am hrs
Key banking and economic indicators during the first week of May have shown that the credit-deposit (CD) ratio, an index of the health of the banking system, had dropped to January 2006 levels. While the growth in the non-food credit was lower at 17.4%, the deposits growth remained higher at 22.7% for the week ended May 8, 2009.

As a result, the CD ratio dropped to 69.6%, while incremental CD ratio declined to 55.4% during the week. The CD ratio was lowest since January 2006, said an analyst with a local brokerage house. A major reason for the lower CD ratio could be the slowdown in industrial activity and consumer demand. However, the trend may change within the next two quarters with the new governments policies expected to revive the economy. With the continuity in the government, the reform policies to kickstart the economy is expected to accelerate, he added.

A declining CD ratio implies sluggishness in overall economic activity, for which credit lines are required to be tied up from banks. It also suggests that the banking sector has been flush with funds without any corresponding demand for credit affecting the banks profitability in the long run, as they have to pay interest to depositors without corresponding income from the credit outflow.

Though the inflation for the week stood at 0.61%, compared to 0.48% reported in the previous week, the call rates remained around the lower end of the liquidity adjustment facility (LAF) corridor as there was ample liquidity in the system. The long-term yield curves showed upward movement during the week. The 10-year bond yield increased to 6.47% as against 6.21% as on May 6, 2007. The growth in deposit mobilisation was at 22.7% as compared to 22.9% in the preceding fortnight.

According to the statistics compiled by house Emkay Research, the demand deposits constituted about 12.5% of the total deposits for the week. Statutory liquidity ratio (SLR) stood at 31.7% as against 31.1% in the preceding fortnight, says the analyst. The growth in money supply declined slightly to 21.1% year-on-year from 21.4% in the preceding week and the net forex assets of the banking system declined by 1.6 %.

Not in the pink of health

While the growth in the non-food credit was lower at 17.4%, the deposits growth remained higher at 22.7% for the week ended May 8, 2009

Though the inflation for the week stood at 0.61%, compared to 0.48% in the previous week, the call rates remained around the lower end of the LAF corridor as there was ample liquidity in the system

The 10-year bond yield increased to 6.47% as against 6.21% as on May 6, 2007. The growth in deposit mobilisation was at 22.7%, compared to 22.9% in the preceding fortnight

The demand deposits constituted about 12.5% of the total deposits for the week. SLR stood at 31.7%, against 31.1% in the preceding fortnight

The growth in money supply declined slightly to 21.1% year-on-year from 21.4% in the preceding week and the net forex assets of the banking system declined by 1.6 %