RBI report says, increase in bank deposits by 14.44 per cent

As per data available, by fortnight ended August 27, there was increase in bank fixed deposits by Rs 38,658 crore as against a decline of around Rs 8,000 in the previous fortnight, which shows recent raise in deposit rates by banks have succeeded in attracting the customers.

As per the Reserve Bank of India (RBI), latest data, there has been an increase of 14.44 per cent on a year-on-year basis, in bank deposits.

RBI in first quarter monetary policy review had asked banks to improve deposit growth therefore, banks started raising rates. Most banks have raised rates of short- and medium-term fixed deposit by up to 150 basis points.

In its policy review, RBI has projected 18 per cent deposit growth for 2010-11 but deposit growth has not exceeded 15 percent in this financial year.

During the fortnight bank credit had come down by Rs 13,114 crore. At the end of fortnight bank credit had increased by 19.4 percent on a year-on-year basis. And the outstanding bank credit was reported to be at Rs 33,51,396, against Rs 28,06,741 crore at the end of the previous fortnight.

Bankers are expecting modest credit demand in the current quarter. However, there has been increase in demand during the first quarter of the financial year, mainly because there was huge demand from telecom companies for 3G and broadband wireless access.

A senior public sector executive said, “Credit flow may not have happened from the banking system but corporate have availed of the alternate sources. They have raised funds from other routes like commercial papers (CPs) and mutual fund.”

Moreover, last month profits on CPs touched to one-year high as banking system had shifted to base rates as corporates had no means to raise short-term capital.

A senior executive of another public sector bank, “Demand for credit is not robust. We had expected a moderate credit growth in this quarter. With funds flowing from other sources to the commercial sector, demand from banking will be slow for some more time.”

Although for the current financial year the apex bank has projected 20% growth in credit.

Number of banks has also raised their benchmark prime lending rates (BPLR) in order to encourage more customers to move to the base rate system. The base rate system was introduced from July 1. Till now, the borrowers have not shifted to base rate system.

Thus, during fortnight there has been increase in deposit growth and drop in credit growth, banks’ investment in government securities has also moved up by Rs 23,674 crore.