Deposit & loan surge belies slump fears

MUMBAI: Banking activity remained brisk even amid talk of slowing investments as outstanding deposits and loans in the banking system surged in the fortnight ended May 20, from a year earlier.

Deposits on a year-on-year basis grew by 17.3% from May 2010 while credit rose by 22.27% from the same period a year earlier, data from the Reserve bank of India show.

Deposits mobilised by all commercial banks rose just 0.6% or 3,246 crore, to Rs 53,19,225 crore for the forthnight ended May 6 from the preceding fortnight, data from the Reserve Bank of India show. Total loans dipped Rs 5,270.6 crore to Rs 39,52,113.5 crore during the same period.

Most economists and bank analysts believe that demand for credit may slow in the coming months as higher interest rates could deter borrowing.

In fact, the country's largest bank, the State Bank of India , raised its lending rates - both prime lending rate and base rate - by 100 basis points to 14% and 9.25% in two phases in the month of April and May this year. Similarly, all PSU banks and private banks raised their lending rates in May by at least 50 basis points.

Even the data released by the government on Tuesday show that the economy grew 7.8% in the fourth quarter - a 21-month low as corporates preferred to go slow on their expansion plans.

Bankers, however, feel that slowdown could not be only on account of raising interest rates. But they are optimistic that they would be able to achieve 20-25% credit growth in this financial year.

Sensing poor deposits mobilisation, a number of banks, including Bank of India and Lakshmi Vilas Bank , have raised their deposit rates early this week. Bank of India raised deposit rates by 150 basis points in short tenure.

However, Bank of Baroda CMD MD Mallya and Union Bank of India CMD MV Nair told ET on Tuesday that they do not feel the need to raise lending or deposit rates in the immediate future.

The low demand for loans has led to some banks parking money in central government securities. This is reflected in the rise in investment portfolio. During the same fortnight, the investment book of banks rose Rs 16,739 crore to Rs 15,69,843 crore.

Source: EconomicTimes