In the October-December quarter, credit outstripped deposits by a big margin

Bank deposit growth, which lagged credit growth in the October-December quarter of the current financial year, appears to be gathering momentum in the fourth quarter.

As per banks’ statement of position released by the Reserve Bank of India, in the first fortnight of the January-March quarter, bank deposits grew by a robust Rs 62,750 crore while credit growth was relatively moderate at Rs 17,380 crore.

In the October-December quarter, the banking system’s credit growth outpaced deposit growth. While credit was up by Rs 2,23,238 crore, deposit growth was relatively muted at Rs 68,470 crore.

Due to the slowdown in deposit growth in the third quarter, there were concerns about the banking system’s ability to support credit growth. Deposit growth slowed down in the third quarter in the face of competitive returns being offered by other asset classes such as equities and gold.

Refinancing risk

Credit rating agency India Ratings said that refinancing (replenishing maturing deposits) risk has been rising, particularly for government banks, as long-term loans (infrastructure and residential mortgage) have increasingly been financed by short-term deposits (up to one year).

“Asset-liability mismatches up to one year are at all-time high levels, and for a few banks, even higher than their stock of government securities,” said the rating agency.

A notable feature of the funding profile of government banks in recent years has been wider gaps in the one-year funding profile.

Sectoral deployment

As per the RBI’s data on sectoral deployment of credit, banks saw a higher year-on-year growth of 24.4 per cent in credit to agriculture and allied activities as on end-November 2012 against 7.3 per cent as on November 18, 2011. Personal loans increased by 16.3 per cent (13.3 per cent).

Credit to industry (micro and small, medium and large) and services sectors saw a slower year-on-year growth of 17.7 per cent (20.9 per cent) and 15.3 per cent (17.2 per cent).

(This article was published on January 23, 2013)
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