Addressing the Reserve Bank of India's concerns of a huge gap between credit and deposit growth, bankers said this gap is likely to close by the end of the fiscal.

In its monetary policy, the central bank said that incremental non-food credit-deposit ratio stood at 102 per cent as of end-December 2010, up from 58 per cent in the corresponding year-ago period.

According to bankers, credit growth is likely to moderate to around 21 per cent, due to the base effect, while deposit growth may pick up and touch levels of 17-18 per cent following the hike in deposit rates by most banks.

In its third quarter review of the monetary policy, the RBI expressed concern about the gap in the rate of growth of credit and deposits. While credit has grown at 24 per cent, deposits have increased by only around 16 per cent.

‘Not sustainable'

“Rapid credit growth without a commensurate increase in deposits is not sustainable,” the RBI said.

Mr M D. Mallya, Chairman and Managing Director, Bank of Baroda, said the system could see a 20-21 per cent credit growth. “The growth in credit in the last quarter of last year was substantial. Perhaps because of this, credit growth this year will come down to around 20-21 per cent”. Looking at the deposit growth till last quarter, deposits should see a 17-18 per cent growth, he added.

Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said: “Most of the banks have increased deposit rates and as of December 31, deposit growth has grown up to 16.5 per cent. It may reach to 18 per cent. If it doesn't, we may have to raise deposit rates which will in turn increase base rates”.

Bankers pointed out that the RBI's concerns stem from the fact that gap between credit and deposit growth rates will create liquidity and systemic issues. The central bank does not want banks to borrow from the overnight call money market and then lend.

Others sources

Mr O. P. Bhatt, Chairman, State Bank of India, said that though deposits are a major source to fund credit, they are not the only source. “Banks can raise tier 1 and tier 2 capital, forex sources, refinance and retail profits. For example, we are raising Rs 2,000 crore through retail bonds. We will be able to raise Rs 20,000 crore through the rights issue. So deposits are a major source but not the only source”, he said.

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