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Plenty of funds to lend, but few takers. That's what bankers are faced with today, as high interest rates and growing risk aversion have crimped demand for credit by corporates and consumers even while attracting a gush of deposit inflows.
During the first four months of this fiscal, aggregate deposits with scheduled commercial banks have grown by Rs 2,73,163 crore, which is 50 per cent more than the increase of Rs 1,81,917 crore in the same period of 2010-11.
But as against this, the growth in credit off-take, at Rs 63,283 crore, has been less than half of the Rs 1,35,211 crore that they lent during April-July 2010.
The contrast between slowing credit and soaring deposits is starker if one looks at non-food credit (which has grown at a still lower pace) and time deposits (which have expanded 1.7 times that of last year, even as lower interest-bearing demand deposits have shrunk more rapidly).
“A credit slowdown, by itself, is not worrying because the demand for funds is normally low in the first half. What is of concern, though, is that the pipeline (that is, fresh credit sanctions) is weak, which has implications for a pick-up in the second half,” said Mr K. R. Kamath, Chairman and Managing Director, Punjab National Bank.
Echoing the same view was Mr P. K. Anand, Executive Director, Punjab and Sind Bank. “This is the time when new credit proposals get built up for off-take in the busy season. But we do not see that really happening now”, he noted.
More into G-Secs
The weak demand for credit is also borne out by the increase in banks' investment in government securities, which, at Rs 1,79,638 crore, is almost thrice the amount they lent out during April-July.
It was the other way round in the first four months of the previous fiscal, with the additional credit extended by them being twice the amount deployed in sovereign paper.
On the other hand, there has been a huge jump in bank deposits this year, which the CMD of Oriental Bank of Commerce, Mr Nagesh Pydah, attributed to the “flow of money from alternative avenues such as equities and mutual funds”.
The increase in fixed deposit rates, moreover, has made even corporates park their surplus funds with banks as a high-return, safe-haven option, he added.
Coal India Ltd, for instance, earned an extra Rs 478 crore during April-June (over the same quarter of last year) from a near-300 basis points rise in the average interest rate on its fixed deposits.
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