Bank business remained tepid in July as both credit and deposits failed to keep pace with last year’s levels, the latest Reserve Bank of India data indicates.
While deposits rose 10.6 percent year-on-year as of July 26 compared to 12.9 percent in the same period a year ago, credit grew 13.7 percent compared to 19.5 percent a year ago according the figures in the latest weekly statistical supplement.
Even if one includes the merger impact of HDFC with HDFC Bank, deposits grew 11 percent compared to 12 percent in the same period a year ago. But credit growth was marginally better at 15.1 percent compared to 14.6 percent in the same period a year ago.
Significantly banks have been relying on deposit resources like borrowings from the market through short-term and long term bonds. In the latest fortnight ended July 26, while aggregate deposit rose Rs 16,424 crore, borrowings rose by Rs 47,412 crore. Banks prefer this route as these borrowings turn out cheaper because they do not attract premptions like the stautoty liquidity ratio (SLR) cash reserve requirement (SLR).
The Reserve Bank on its part is nudging banks to focus on core resource mobilisation that is deposits. In his proactive identifcation of potential risks and challenges during his monetary policy statement, the RBI governor Shaktikanta Das said ” it is observed that alternative investment avenues are becoming more attractive to retail customers and banks are facing challenges on the funding front with bank deposits trailing loan growth. As a result, banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand. This, as I emphasised elsewhere, may potentially expose the banking system to structural liquidity issues. Banks may, therefore, focus more on mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network.”
