The growth in bank deposits slowed to a four-month low of 13.7 per cent, while advances soared 16.3 per cent in the fortnight ended March 9, according to data released by the Reserve Bank of India (RBI).
V R Iyer, executive director at Central Bank of India, said the demand for project loans in infrastructure and small and medium enterprises had increased in two-three weeks. “Sentiments across these segments have improved and we are witnessing a large number of new proposals. It does not seem a short-term spurt in demand.”
Typically, banks tend to shore up balancesheets towards the end of a financial year. Most banks have increased rates on term deposits to attract funds to support the spurt in credit growth. Liquidity tightness has also resulted in high demand for funds from banks.
“Deposit rates have moved up a bit, as banks are witnessing increased demand for advances from companies due to tax payment requirements,” said M R Nayak, executive director, Allahabad Bank.
Various banks, including State Bank of India, Bank of Baroda, Bank of India and ING Vysya Bank, have recently increased deposit rates, depending on the need for funds in specific maturities.
The need to increase deposit rates also comes at a time when banks require funds to redeem high-cost bulk deposits. In the fortnight ended March 9, bank advances soared by about Rs 80,000 crore, while the growth in deposits stood at about Rs 38,000 crore.
While deposit growth slipped below RBI’s projection of 17 per cent, credit growth is now in line with the central bank’s projection of 16 per cent for the current financial year.
Credit growth was damp for most of the year, owing to high lending rates and tight liquidity conditions. Keeping this in mind, RBI lowered the credit growth projection from 19 per cent to 18 per cent in the first quarter review and to 16 per cent in the third quarter review of monetary and credit policy 2011-12. The deposit growth target, however, has been retained at 17 per cent since the beginning of financial year 2011-12.
