Bank deposits grew, owing to high interest rates, while growth in bank advances slowed in the first half of the current financial year.
According to data released by the Reserve Bank of India (RBI), bank credit rose 3.9 per cent in the April-September period, lower than the 5.6 per cent growth in the same period of the previous financial year. Bankers attribute the fall to higher lending rates and the slowdown in economic activity this financial year.
“Year-to-date credit growth for our bank has been five per cent. The reason for this is companies have been resorting to raising funds through sources other than bank loans, like commercial papers,” said Pratip Chaudhuri, chairman, State Bank of India (SBI).
P Sitaram, chief financial officer, IDBI Bank, said much of the credit growth in 2010-11 was seen in the fourth quarter. "This has pushed year-on-year growth. Companies are drawing working capital limits and some disbursals are seen in the case of small borrowers for buying homes," he said.
RBI has raised key policy rates by 150 basis points since April to rein in inflation and anchor inflationary expectations. Responding to this, banks raised their lending rates to pass on the rise in cost to customers.
"Home loan growth in the last five months has been lower than the growth in the same period last year, and there has been no significant growth due to the festive season. This is because construction activity is not booming,” said A Krishna Kumar, managing director, SBI.
In the customary pre-policy meeting on Tuesday, bankers asked RBI to consider a pause in monetary tightening, since another rise would not only impact credit demand, but also worsen asset quality. RBI is scheduled to announce the half-yearly review of the monetary and credit policy on October 25.
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Meanwhile, bank deposits rose 6.3 per cent in the April-September period, higher than the 4.9 per cent growth in the same period of the previous financial year. “Banks are offering higher interest rates and fixed deposits are considered safer investment instrument at times of uncertainty on growth prospects,” said a senior official with a Mumbai-based public sector bank.
On a year-on-year basis, bank advances rose 19.5 per cent, while bank deposits rose 17.38 per cent as on September 23. RBI has projected credit growth of 19 per cent, and deposit growth of 17 per cent for financial year 2011-12.