The Hindu Business Line : For second year running — Bank loan growth set to top incremental deposits

According to figures provided by the Reserve Bank of India, incremental loans given by banks this fiscal have touched Rs 2,82,000 crore as of February 3, while incremental deposits garnered by the banks in the same period were Rs 2,72,000 crore.

In the previous fiscal, incremental deposits were about Rs 1,66,000 crore, while loans were about 2,26,000 crore.

Loan growth has been galloping at 26 per cent for the second year while deposit growth has been relatively slower at about 16 per cent. Loan growth rates are generally higher than deposit growth rates simply because deposits have a larger base. However, the actual incremental loans given during a year have never exceeded incremental deposits before the last fiscal.

So, does it follow then that money is getting scarcer and will reflect in higher interest rates?

Bankers say that that some amount of re-pricing has already happened.

But what can the government or Reserve Bank of India do if this kind of growth sustains?

Says Mr Sanjeet Singh, debt market analyst, ICICI Securities, "The RBI can cut the cash reserve ratio to 3 per cent from the current level of 5 per cent, in line with their medium term projections. Or, they can increase forex purchases to improve liquidity - which they have been doing in a limited fashion now for the last few weeks. Of course, the government has also cancelled some auctions because of its cash surplus."

Pointing out that the slack season demand for loans will be much lower, Mr Singh expects some of the liquidity tightness might soon get corrected.

He said, "The RBI can always target interest rates if necessary."