Thursday, June 12, 2008

Banks fail to grow credit disbursement

by Jo Black

Lured by high interest rates, savings in India are on rise but the banks are unable to increase the credit allotment in the expansionary economy.

This is evident by the ASSOCHAM Eco Pulse (AEP) Study on Banking Sector which revealed that deposit growth at banks has improved remarkably, while growth in advances has slowed down.

Lucrative lending rates in the high interest rate economy have led to a significant rise of 23 per cent in the aggregate deposits of scheduled commercial banks (SCBs) as compared to 16 per cent growth in FY07.

On the other hand, the growth in loans and advances shrank from 29 per cent to 23 per cent in the fiscal 2007-08, revealed the ASSOCHAM study.

High interest rates are inducing people to save more rather than consume.

The resultant high growth in deposits is raising the liquidity with banks as the credit disbursement is slow, said Mr. Venugopal N Dhoot, President, ASSOCHAM.

He further stated that high interest rates are hurting the industry in both ways by reduced consumption and costly credit.

One of the reasons contributing to a substantial slow down in the credit growth of banks in the fiscal 2007-08 could be various monetary policy tightening steps taken by the Reserve Bank of India, which include rate hikes making retail loans unaffordable for the customers and high bank reserve requirements.

The average deposit rates rose by 75 basis points from 7.5 per cent in the FY2006-07 to 8.25 per cent in the financial year 2007-08.

On the other hand, prime lending rate was raised from 12.50 per cent to 13.25 per cent as a result of monetary tightening of the central bank.

The AEP Study further revealed that there has been a sizable expansion in the aggregate deposits of SCBs in the current financial year.

Aggregate deposits of banks, y-o-y, increased by 21.2 per cent as at end-March 2008 as compared with 22.3 per cent a year ago.

In the private sector, collectively banks registered deposit growth of 23.56 per cent in the F.Y. 2007-08, though being lower than a whopping 39 per cent in the corresponding period previous year.

The public sector banks witnessed a rise of about 24.42 per cent in 2007-08 against 15.99 per cent in the corresponding period previous year.

Deposits growth was the highest in case of IDBI Bank about 68.38 per cent in 2007-08 as against 66.75 per cent 2006-07.

HDFC Bank reported 47 per cent growth in deposits which was higher than 22 per cent growth rate in the fiscal 07.

The deposit growth rose by 32 per cent in the financial year ending 31 March 2008 as compared to 15 per cent growth a year back.

Among the public sector banks, Indian Bank and State Bank of India improved their deposit growth rates.

The Indian bank reported 29 per cent rise in the deposits as compared to 15 per cent growth in fiscal 07.

SBI, the largest bank of India, continued its growth momentum by raising 23 per cent more desists in 2007-08. The growth rate was 14 per cent in the previous financial year.
ICICI Bank, the largest in private banking sector, presented a contrary story.

Its deposits in fiscal 08 rose only by 6 per cent in contrast to 39 per cent growth in the previous financial year.

This is despite 27 per cent growth in its current and saving account deposits.

 

 

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