Rising cost of funds is making banks revisit credit growth estimates. State Bank of India (SBI), the country’s largest lender, today signaled that tight liquidity might raise borrowing costs, impacting credit growth.
SBI Chief Financial Officer S S Ranjan said the economy was growing at a higher rate and it was time to inject money into the system.
In an effort to attract retail deposits, SBI has raised deposits rates thrice since October. The minimum increase in three months is 125 basis points. It has also been actively raising three-month certificates of deposits by offering an annual rate of nine per cent. High inflation had put pressure on the savings, which affected the bank’s deposit mobilisation efforts. While banks have aggressively jacked up deposits rates, they have also started passing the high cost of funds to customers. A similar trend in future might impact credit growth, he said.
IDBI raises deposit rates
In view of the demand for credit, inflation and the liquidity scenario, IDBI Bank today raised retail term deposit rates by 25-75 basis points across different maturity buckets. With this revision, the highest rate on retail term deposits is 9.25 per cent.
CFO P Sitaram said rising cost of funds put constraints (limits ability to raise money and pass the cost to customers). Earlier (in October 2010), the bank was looking at up to 20 per cent loan growth this financial year. However, the target has been revisited to 18 per cent owing to limitations on raising funds.
The bank is also hamstrung by the small share of low-cost current and savings account (Casa) deposits. At the end of September, its Casa ratio was close to 15.3 per cent.
Banks are concerned about the widening gap between credit and deposit growth. Till mid-December, credit rose by 12.4 per cent, while deposits were lagging at 6.8 per cent. The situation was quite different in 2009-10. During April-December, deposits grew 9.8 per cent, as against a credit growth rate of 5.7 per cent, according to RBI data.
Agreering that there was a downside risk to credit growth due to rising cost of funds, Rupa Nitsure-Rege, chief economist with Bank of Baroda, said demand from the retail and small enterprise segment might take a hit.
