Bank deposits continued to rise, owing to attractive interest rates on retail and corporate deposits. According to data released by the Reserve Bank of India (RBI), deposits rose 17.37 per cent annually as on May 20. The annual growth in deposits stood at 17 per cent a fortnight ago.
“Retail deposits are going strong, as banks are offering higher interest rates on short-term deposits as well,” said a banking analyst with a domestic brokerage. Also, part of the growth could be from the roll-over of certificates of deposits that banks issued in the last financial year.
In May, banks had raised deposit rates for maturities of up to six months to bring them in line with the rise in savings bank deposit rate, which was revised by RBI by 50 basis points on May 3. As on May 20, deposits rose by Rs 3,246 crore over the last fortnight.
On the other hand, credit growth remained sluggish. The growth in bank advances stood at 22.2 per cent as on May 20, compared to the same period last year, a decline of 22.5 per cent from a fortnight ago. Bank advances declined by Rs 5,270 crore as on May 20.
Analysts feel in the current financial year, credit growth is likely to take a hit due to the increase in lending rates. Most banks have increased their base rates after RBI's policy rate rise on May 3. State Bank of India raised its base rate by 75 basis points, effective May 12. This was the second rate increase by the bank within a month.
RBI has projected a growth of 18 per cent in bank advances and 17 per cent in deposits by the end of the current financial year. In the last financial year, bank advances, at 21 per cent, exceeded RBI’s expectations, while deposits lagged at 16 per cent.