Slow growth in deposits poses a threat to lending rate cut plans of banks, according to Indranil Sen Gupta, chief economist of Bank of America Merrill Lynch in India.
"It is for this reason we expect the Reserve Bank of India (RBI) to give OMO (open market operation) an additional Rs 32,000 crore by March, 2013 atop Rs 128,900 crore fiscal year-to-date to improve liquidity," Sen Gupta wrote in his note to clients today.
Bank deposits fell for the fortnight ended December 14, 2012. On a year-on-year basis, deposits grew 13.3% to Rs 64.3 lakh crore but fell 0.1% sequentially, RBI data showed. The central bank has projected deposit growth of 15% for the current financial year. But many bankers have expressed doubts on achieving the growth target.
Sengupta said the slow pace of growth in bank deposits was on account of RBI's intervention in foreign exchange market that sucked out liquidity from the system.
"Why did bank deposits fall in December quarter, clients ask? Due to a simple statistical quirk, that will likely reverse next fortnight. Some of the other explanations doing the rounds – negative real rates, excessive consumption or gold demand – are, in our opinion, completely off the mark. That said, we continue to highlight that systemically slow deposit growth poses a threat to lending rate cuts given higher-than-expected loan demand," Sen Gupta said.
He, however, was hopeful that deposit growth will accelerate in coming months and will be around 15-16% by March, 2013.