The Reserve Bank of India's January announcement that it will constantly monitor the credit growth and, if necessary, engage with banks which show an abnormal incremental credit-deposit ratio appears to be having the desired effect.

Incremental credit-deposit (C-D) ratio of banks has come down to about 42 per cent in the January 1 to February 28 period, compared with 102 per cent by end-December 2010.

Slower credit growth

Even as bank deposits have soared by Rs 1,12,462 crore in the January 1 to February 28 period, credit has increased at a relatively slower clip by Rs 47,232 crore.

The wide gap between credit and deposit growth, resulting in the incremental non-food C-D ratio jumping to 102 per cent by end-December 2010, had prompted the RBI to caution in January that it will constantly monitor the credit growth and, if necessary, engage with banks which show an abnormal incremental C-D ratio. Attractive interest rates of 9-10 per cent on term deposits are bolstering banks' liabilities, say bankers.

However, term deposits are growing at the expense of savings bank deposits.

Banks are being a little circumspect about their lending in view of the RBI's caution.

Liquidity adjustment

“Banks borrowing from the RBI's liquidity adjustment facility has come down from over Rs 1 lakh crore a few weeks back to about Rs 50,000 crore.

“This shows that they are depending more on their own resources (deposits) to fuel credit growth,” said a senior public sector bank official.

Interest rates on term deposits may have peaked as the liquidity situation in the banking system is gradually turning comfortable, he added.

“Going by the liquidity scenario and also the need to shore up margins, interest rates on deposits could come down a tad after March-end,” said another banker.

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