The crisis of confidence due to the global financial meltdown in September 2008 seems to have encouraged depositors to move their money to ‘safer havens’.
This is evident from the fact that the share of state-owned banks (public sector banks, or PSBs) in deposits rose by 2.4 per cent to 72.4 per cent by the end of December 2008, as against 70 per cent a year ago.
Even the credit share of state-owned banks – which includes nationalised banks and the State Bank of India group – went up by 2.1 per cent to 72.7 per cent by December 2008 as compared with 70.8 per cent in the year-ago period, according to the quarterly data provided by the Reserve Bank of India.
Commenting on the rise in their share of deposits, PSB officials said that the effects of the global financial crisis, especially in the aftermath of Lehman Brothers’ collapse, were felt in India. “People were concerned about it – hence, their capital’s flight to safety. Also, rumours about the financial health of a large private sector bank added to their apprehensions,” said a public sector bank executive.
“At one time, we were receiving deposits worth Rs 1,000 crore a day. Besides, the interest rate on the 1,000-day scheme was also quite attractive at about 9.5 per cent,” a senior State Bank of India official said. RBI’s data on deposit growth till early 2009 backs this timeline.
The year-on-year growth in deposits of PSBs remained unchanged at 24.2 per cent over early 2008.
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But, for Indian private banks, the rate nearly halved to 13.1 per cent from 26.9 per cent in early 2008. In the case of foreign banks, the drop in growth rate was even sharper as it dipped to 12.1 per cent in the period under review from 34.1 per cent a year ago.
| ADVANTAGE PUBLIC SECTOR Share of banks in deposits and gross credit | ||||
| (Shares in %) | Credit | Deposits | ||
| Oct-Dec 07 | Oct-Dec 08 | Oct-Dec 07 | Oct-Dec 08 | |
| Nationalised banks | 46.8 | 49.0 | 47.7 | 48.3 |
| SBI & associates | 23.2 | 23.4 | 22.9 | 24.4 |
| Other commercial banks | 20.6 | 18.7 | 20.2 | 18.6 |
| Foreign banks | 6.9 | 6.6 | 6.2 | 5.7 |
| Regional rural banks | 2.5 | 2.3 | 3.0 | 2.9 |
| Source: RBI | ||||
The global financial meltdown sucked out liquidity from the credit markets as banks lost confidence in each other.
The foreign banks themselves were forced into a tight spot. As a consequence, the demand shifted to domestic market, which was met mostly by public sector banks.
The year-on-year growth in credit for PSBs also moved up to 28.6 per cent from 19.8 per cent in early 2008.
The opposite was true in case of foreign and private banks, with the credit growth declining from 30.7 per cent to 16.9 per cent (for foreign banks) and to 11.8 per cent from 24.2 per cent (for private banks).
At the all-India level, the credit-deposit (C/D) ratio of all scheduled commercial banks as of end-December 2008 stood at 74.8 per cent, up from 73.4 per cent a year ago.
The C/D ratio of nationalised banks grew to 75.8 per cent from 72 per cent.