India?s commercial banking system continues to be sound, healthy, adequately capitalised and well-regulated at the beginning of the second term of the UPA government, according to RBI data studied.

Scheduled commercial banks (public sector, private sector and foreign banks) have shown an impressive growth from 2004-05 to 2008-09. The compound annual growth rate (CAGR) of deposit figures of scheduled commercial banks was 21.9%. Total advances given by scheduled commercial banks proved to be higher than deposit figures during the similar period showing a CAGR of 25.3% in the said period.

The CAGR of demand and time deposits of scheduled commercial banks during the same period was 18.4% and 22.5%, respectively. Demand deposits refer to deposits that can be called at any time whereas time deposits refer to long-term deposits with a fixed minimum duration. In some cases demand deposits witnessed switching to time deposits due to increased interest rates offered on the latter.

Commenting on banking trends, Dinesh Thakkar, CMD, Angel Broking, said, ?Last five years we saw a robust equity market where people got good returns on their investments in these assets as compared to returns on bank deposits hence money went into equity markets.

During the cycle we also saw lots of expansion with the corporate sector. Hence lots of money from these banks flowed to the corporate sector to fund capex plan of companies. Hence deposit offtake to credit offtake was skewed towards the credit growth.?

The total deposits of scheduled commercial banks increased 121% from Rs 17.33 lakh crore in 2004-05 to Rs 38.30 lakh crore in 2008-09. The demand and time deposits increased 96.2% to Rs 5.20 lakh crore and 125.5% to Rs 33.10 lakh crore, respectively. The total advances of these banks moved up 146.4% from Rs 11.24 lakh crore in 2004-05 to Rs 27.70 lakh crore in 2008-09.

Banking sector recorded credit growth of 34% in 2005-06 that was highest during the study period and credit growth in excess of 28% for three consecutive years from 2004-05 to 2006-07, which is the best in the banking industry.

Increase in economic activity and robust primary and secondary markets during this period have helped the banks to garner larger increase in their fee-based incomes.

Additionally, several factors contributed to the accelerated growth of ?term deposits? during 2006-07. There was a clear shift from postal savings to term deposits of banks due to favourable interest rate differentials and extension of tax benefits to long-term bank deposits. Next, the demand for term deposits also increased from cash-rich private and public sector companies, which on the back of high profitability, parked their surplus funds with banks. Three, non-resident deposits registered a higher growth during 2006-07 as compared with the previous year.

Credit growth was 28.1% in 2006-07 when the total deposits grew 23.8% in simple terms. While in 2008-09, the total advances registered a growth of 17.3% and total deposits grew by 19.8%.

With the downturn in the economy, both credit and deposit growth are largely expected to moderate. Spend on infrastructure will be the main driver of credit growth and retail credit is expected show a moderate growth.