Both bank credit and deposit growth have lost steam, as per the latest RBI (Reserve Bank of India) data. Deposits have fallen to Rs 59,31,747.95 crore during the fortnight ended January 27, from Rs 59,61,015.72 crore in the previous fortnight. Bank credit growth has fallen to Rs 44,87,967.68 crore, from Rs 44,89,866.98 crore during the same period.

M Narendra, chairman and managing director, Indian Overseas Bank said, “We have seen some improvement in credit offtake. But, it is still expected to pick up as the interest rates fall. At this point of time, not many new investment projects are coming up. But, situation is expected to improve.”

He added that banking sector would be able to clock 16 per cent credit growth rate. RBI also revised its credit growth projection to 16 per cent from 18 per cent for this financial year.

Bankers, however, say that bank credit will pick up because banks will direct more credit to productive sectors so that their advances growth picks up.

RBI infused Rs 32,000 crore in the banking system by cutting the cash reserve ratio (CRR) by 50 basis points.

Retail deposit rates for most banks are around 9.5-10 per cent, while the base rates vary from 10 to 10.75 per cent. So, the banks have little room to reduce their base rate until they bring down deposit rates. “While retail credit is growing (mainly due to home loans and car loans), corporate credit is sluggish. It will improve by April 2012,” said an official of a public sector bank who did not wish to be quoted.

The official added that deposits would also pick up as the interest rates on deposits are still attractive. “This year, overall savings rate has fallen. Also, due to inflation, people may not be investing in deposits,” he said.

Credit deceleration was particularly sharp for public sector banks with growth moderating from 21 per cent to 15 per cent up to December 31, 2011, according to the RBI data. “Disaggregated data for November showed that there was a general deceleration in credit flow across sectors, except for personal loans. The deceleration was particularly sharp in agriculture, real estate, infrastructure, engineering, cement and cement products,” RBI said in third quarter review of monetary policy on January 24.

During the third quarter of 2011-12, about 23 banks raised their base rates by 10 to 100 basis points, even as the modal base rate of banks remained unchanged at 10.75 per cent. The slowdown in total resources flow to the commercial sector and the peaking of base rates of banks reflects slowing down of investment activity.

shrutiverma

@mydigitalfc.com