The growth in bank advances continued to decline, owing to a rise in lending rates. Along with corporate credit, bankers say there is a slowdown in retail credit as well.
According to recent data from the Reserve Bank of India (RBI), credit growth declined to 18.5 per cent on an annual basis as on July 29, compared with 19.33 per cent a fortnight before. Bank advances fell by Rs 9,000 crore over the fortnight ended July 29.
“The slowdown is seen in both retail and corporate credit demand. Normally, by this time, there is some pick-up in demand after a slow first quarter. But this year, the pick-up has not happened,” said P Sitaram, chief financial officer, IDBI Bank. He added other than high interest rates, companies are apprehensive about capital investments because of uncertainties in global economies. He expects the sluggish credit demand to persist in the second quarter as well.
Most banks have raised lending rates by 25-75 basis points in response to the policy rate rise of 50 basis points by RBI last month. To fight inflation, the central bank has raised policy rates by 11 times in the last 16 months. The base rates of banks currently range between 9.5 per cent and 10.75 per cent. Bank deposits continue to attract funds, owing to the high interest rates. RBI data shows bank deposits rose by Rs 64,000 crore in the fortnight ended July 29. However, on an annual basis, deposits rose 17.25 per cent, marginally lower than 17.85 per cent a fortnight ago.
According to data, demand deposits fell 8.8 per cent, compared to the last year, while time deposits showed a robust growth of 21 per cent in the same period. “There is pressure on current account and savings account growth, as the gap between interest rates on fixed deposits and savings rate increased. So, people are shifting their savings to higher yielding fixed deposits,” said Ashok Dutt, executive director, Dena Bank.
The interest on savings bank accounts currently stands at four per cent, while fixed deposits rates range between seven and eight per cent for six months and around 9.25 per cent for a year.
