Liquidity situation improves as bank deposits grow 17%

Bank deposits grew by 17 per cent in the year to February 11, indicating an improved liquidity scenario for banks on the back of increased deposit rates. Loan off-take also remained robust, growing by 24 per cent on-year.

Banks mobilised around Rs 58,000 crore in the fortnight to February 11, data release by the Reserve Bank of India (RBI) show. In the previous fortnight, deposit accretion was around Rs 38,000 crore. RBI had projected deposit growth of 18 per cent for this financial year.

Slow pace of deposit growth, accompanied by the high demand for credit, had forced banks to raise their fixed deposit rates. In the third quarter, they raised deposit rates by around 250 basis points in two-three rounds, followed by another 50-100 basis points in January. The peak retail deposit rate for State Bank of India and ICICI Bank is 9.25 per cent, with the latter offering 10 per cent to senior citizens for 990-day deposits.

“Over the last month, close to one-third of deposit growth came from the retail segment, which was very robust,” said S Govindan, general manager, Union Bank of India. He further said this was because of banks’ focused efforts to attract more deposits by raising interest rates and introducing special offers.

This also indicates liquidity is coming back to the banking system, thereby easing some pressure. “We will have to see how the liquidity scenario improves to decide on a further rise in rates,” said a senior banker with a public sector bank.

The bulk deposit market has also picked up as banks tend to shore up and improve their deposit base. The rates on the three-month certificates of deposits (CDs) issued by banks are above 10 per cent.

On the other hand, with an annual rise of 24 per cent, credit continued to grow at a robust pace as on February 11, higher than RBI’s projection of 20 per cent for this financial year.

The gap in the the growth of credit and deposit, respectively, is more than what the central bank had projected. RBI had expressed concerns regarding the same as it may result in an asset-liability mismatch.

Source: Business Standard