Bankers see loan, deposit projections beyond reach

RBI, banks also discuss deregulation of the savings interest rate.

The Reserve Bank of India’s (RBI’s) projection for 20 per cent credit growth for 2010-11 can be achieved only if there is a substantial spurt in credit offtake in the second half of the financial year, bankers have told the central bank.

The country’s top bankers meet RBI Governor D Subbarao and a deputy governor during the customary pre-policy meeting on Monday. RBI sought bankers’ views on credit and deposit growth, liquidity, freeing of savings bank rate and infrastructure finance, among other things. The second quarter review of the monetary policy is scheduled on November 2.

“The year-on-year credit growth is around 19 per cent, but on a lower base. Though we expect loan growth in second half to be better than in the first half, a substantial credit pickup is needed to achieve the 20 per cent rate,” said a banker who attended the meeting. Most bankers said real credit growth was yet to take place.

According to RBI data, year on year credit growth till September 10 was 19.8 per cent, while deposit growth was 14.8 per cent. RBI has projected 18 per cent growth this year. Some bankers suggested that credit growth for the year might be around 18 per cent.

Bankers also told RBI that term deposit growth had showed some momentum recently after banks raised rates. “We have seen growth in deposits with the recent increase in deposit rates. For the year, 16 per cent deposit growth may be achievable,” said the chairman of a public sector bank.

Tardy deposit growth has been a concern for the central bank as with inflation over eight per cent, the real returns to depositors continue to be negative.

During its mid-term policy review, RBI had said that one important consequence of negative real rates was that banks had seen a deceleration of deposit growth, as savers looked for higher returns elsewhere. “If bank credit is not to become a constraint to growth, real rates need to move in the direction of encouraging bank deposits,” it said.

Bankers said there was also a discussion on deregulating the savings bank rate. Though the idea has been mooted by the central bank, the bankers are not too keen. At 3.5 per cent per annum, this is the only regulated rate in the banking system and a highly contentious one given its impact on the common man. The central bank’s intention was to smoothen the monetary policy transmission (a fixed rate was viewed as a stumbling block for effective policy transmission).