The Hindu Business Line : Banks' deposit mobilisation catches up with credit offtake

After trailing behind for two successive years, growth in deposits of banks has overtaken the additional credit extended by them during the current fiscal.

According to the latest data compiled by the RBI, scheduled commercial banks have managed to attract additional deposits of Rs 2,53,529 crore during the current fiscal till December 8. This is more than the incremental amount of Rs 2,02,421 crore that was lent out by them over this period.

The recovery in deposit mobilisation is in contrast to 2004-05 and 2005-06, which saw banks disburse much more than the money that had accrued to their coffers. With the economy on a roll and demand for credit on the rise, banks, which, not very long ago, were chided for being extra prudent and parking too much of their funds in government paper, suddenly changed tack.

Between 2003-04 and 2005-06, the credit-deposit ratio (CDR) of banks rose from 55.89 per cent to 71.46 per cent. It had slumped to a low of 51.66 per cent in 1998-99. The last time the ratio had crossed 70 per cent was way back in 1976-77! Simultaneously, the investment-deposit ratio (IDR or the proportion of deposits parked in government and other `approved' securities) fell from an all-time-high of 45.04 per cent to 34.02 per cent at the end of 2005-06.

Indicator

The best indicator of how banks have dramatically shifted gears over the last couple of years is the fact that in 2003-04, the incremental amount invested by banks in government paper (Rs 1,30,042 crore) exceeded the sum that was lent out by them during the year (Rs 1,11,570 crore). In 2005-06, the situation more than reversed itself: while credit increased by Rs 3,54,868 crore, the outstanding gilt investments actually shrunk by Rs 22,809 crore.

These trends have held in the current fiscal too, with the CDR currently at 72.36 per cent, having touched a 20-year-high of 72.43 per cent on November 10. The only change is that the growth in bank deposits has caught up with the explosion in credit unleashed since 2004-05.

It has, however, come at a cost, as banks have aggressively being wooing depositors. Many of them are offering 8 per cent plus interest on deposits of even slightly more than one year.

In the process, for the first time in many years, no one is seriously complaining about the `market-distorting' administered rates of the post office or even the Employees Provident Fund.

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