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Higher interest rates on bank deposits continued to attract funds, as the deposit base of banks grew by around Rs 58,000 crore in the fortnight ended June 3. Banks disbursed loans worth around Rs 28,000 crore in the same period.
According to data provided by the Reserve Bank of India (RBI), deposits grew 18.2 per cent annually, up from 17.37 per cent a fortnight ago. The data reflects the fact that the focus of banks has now shifted to strengthening the base of deposits.
“At the moment, deposit growth is very important for banks, as the credit deposit ratio is already high, and going forward, banks would need a strong deposit base if they want to continue to lend,” said Hatim Brochwala, research analyst, Fortune Financials.
Bank credit grew by 21 per cent annually as on June 3, down from 22 per cent a fortnight ago. “This reflects the impact of higher lending rates on credit demand has started to show,” Brochwala said.
Most banks had increased their base rates after RBI’s policy rate rise of 50 basis points on May 3. The country’s largest lender, State Bank of India, had raised its base rate by 75 basis points, effective May 12. This was the second rate increase by the bank in a month. The base rates of most commercial banks currently range between 9.5 per cent and 10 per cent.
With inflation still hovering above the comfort level, RBI is expected to continue the rate rise cycle longer than expected. Wholesale price index inflation stood at 9.06 per cent in May, up from 8.66 per cent in April. As a result, it is widely expected RBI would raise policy rates by 25 basis points in the mid-quarterly review on June 16.
Additional rate increases are expected to hamper credit demand. “Credit growth would slow down further and would remain at around 19 per cent for the current financial year,” said Brochwala.
RBI has projected a growth of 19 per cent in bank advances and 17 per cent in deposits by the end of the current financial year. In the last financial year, bank advances, at 21 per cent, exceeded RBI’s expectations, while deposits lagged at 16 per cent.
Source: Business Standard
3 comments:
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