Banks beat RBI forecast with 21.5% loan growth in FY11

MUMBAI: Banks have exceeded the central bank's projection of 20% loan growth for the year as loans grew by 21.5% until the last reporting Friday of FY11.

Deposits grew by 16.1%, lower than RBI's projection of 18% for the year, though many banks have raised interest rate on deposits over the past 3-4 months.

Bank loans rose 6,98,260.56 crore, or 21.5% to 39,38,659.08 crore as of March 25, 2011, on a year-on-year basis, data released by the Reserve Bank of India showed. However, a bulk of the loans about 42%, was disbursed only in the fourth-quarter. Though bankers see growth across sectors, telecom, real estate and finance companies recorded the highest growth until end February in FY11, according to a separate release by RBI last week.

The year-end spurt could be partly attributed to window dressing, whereby banks lend short-term money in the last month of the fiscal to meet annual credit targets. With about six days' business figures for the fiscal year still not covered in the RBI data, the year could end with an even higher growth in loans as well as deposits.

The RBI data indicates that deposits grew 16%, or 7,18,128.98 crore to 52,04,702.64 crore as of March 25, 2011, on a year-on-year basis. Of this, more than half of the growth was in the fourth-quarter itself. Spurt in deposits during the last quarter was largely due to attractive rates offered by banks in the last quarter of the fiscal.

Banks are now offering 10-10.50% return on deposits - higher than the returns on small savings schemes, which is currently pegged at 8% - after RBI warned to improve their credit to deposit ratio, which had crossed 100%. The Reserve Bank had told banks to either go slow on credit expansion or improve deposit growth.

As a result, banks focused more on mobilising deposits and at the current levels, incremental credit deposit ratio works out to 97%.

Source: EconomicTimes