Deposit growth of banks shows early fatigue signs

Written by Saikat Das | Saikat Das | Mumbai | Updated: Aug 31 2010, 06:14am hrs
Even as banks non-food credit is growing at 20.56% y-o-y crossing RBIs target of 20% for 2010-11, their deposits growth on the other hand shows sign of early fatigue.

RBI data shows that the growth in deposits with banks during the fortnight ended August 13, 2010, was just 14.13% at Rs 46,31,579 crore. Deposits grew at 15.98% for the fortnight ended April 9, 2010. Since then, the pace of growth has been on decline. However, bankers do not see any reason to worry and expect it to pick in the near term.

Canara Bank executive director HSU Kamath said, It is not the deposits that have grown at the slower pace but the credit growth has picked much faster than the usual pace, due to 3G and broadband wireless access (BWA) auction. There is nothing to worry as such. Normally, deposits growth remain subdued in the first quarter and partly in the second quarter due to monsoon and other factors. It picks up thereafter in the so-called busy season starting from the end of July-September quarter.

Canara Bank expects to record a GDP growth of around 22% for the full year 2010-11. Currently, it has a deposit growth of around 22-23%. In the previous fortnight ended July 30, 2010, too, the increase in deposits had been just under 14% at 46,39,595 crore. Several banks raised rates earlier this month after RBIs monetary policy announcement in July-end and bankers expect some improvement due to the higher interest rates being offered. RBI has set a deposit growth target at 18% in 2010-11.

RVS Sridhar, president and head, global markets, Axis Bank said, The recent spate of deposit rate hikes across the banks will give some fillip to deposit growth. If the credit growth picks up faster, there is a possibility of another round of deposit rate hikes provided the RBI continues with its tighter liquidity stance.

Sridhar observes that once the government start spending the money back into the system, deposits are expected to rise as people will have more money to park in banks deposits.

The government accumulated around Rs 1.06 lakh crore from the system through those auctions. It is expected to spend the amount on infrastructure building.

According to B A Prabhakar, executive director, Bank of India (BoI), banks are now seeing inflows. Banks have been raising funds through certificate of deposits, typically at 7.85%, for a maturity of one year. This along with the hike in deposit rates of across maturities has started reflecting in industrys deposit growth. BoI, however, is reporting a growth which is better than the industry average, at 19% and according to Prabhakar, should see a deposit growth of 22% in 2010-11.