Hunt for bank deposits slows despite loan growth doubled | Bombay News

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Mumbai: Bank credit growth is nearly twice as fast as deposit growth for most lenders. The pace of credit growth was much higher than most lenders expected in the first quarter of the current fiscal year. Still, banks aren’t jostling for retail deposits and are taking a cautious approach by raising interest rates through limited-time offers, as they don’t know how long credit growth will sustain.
According RBI According to the data, bank credit increased by 16.5% at the end of September, while deposits increased by 9.2%. Credit growth accelerated further to 18% as of October 21, while deposits continue to grow at 9.5%. But rather than increasing deposit growth, banks are withdrawing into their investments and increasing their credit-to-deposit ratio. Most banks have raised their deposit ratio to over 80%.
The country’s biggest lender, SBI, saw its credit increase by 20% at the end of September, against 12% expected at the start of the year. Chairman of the SBI Dinesh Khara attributes the growth to the “busy season” and expects overall credit to grow 14-16% this fiscal year. According to Khara, the main drivers of credit are infrastructure, renewable energy, oil marketing companies and services, which are largely non-banking financial companies. While demand from oil marketing companies is expected to decline as oil prices moderate, other sectors are expected to pick up.
As the RBI has hiked interest rates every two months since May, Kara don’t see it hindering credit demand yet. “As long as there is visibility of demand for the goods they produce, there will be demand for credit from businesses. Moreover, it is the cost of raw materials that has a greater impact on their costs while spending on credit would be less than 10% of their overall costs,” he said.
According to Bank of Baroda MD Sanjiv Chadha, bank credit exceeds deposit growth during a busy economic cycle. “The deposit rate scenario has yet to stabilize. It makes sense to be flexible with the tariffs so that we can bring them into stable tariffs in the coming months. Until we reach a stable rate, the review will aim to attract additional deposits. While it is true that loan growth is robust, we cannot extrapolate this growth indefinitely into the future,” Chadha said.
Union Bank of India, which posted 21.9% credit growth in the first half, is targeting credit growth of 10-12% for the full year.
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