Banks have had a tough second quarter. Going by the numbers compiled by the Reserve Bank of India, demand for credit was anaemic, and deposit accretion slack.
In the second quarter so far (up to September 24), banks disbursed credit aggregating Rs 19,902 crore, a far cry from the first quarter credit growth figure of Rs 1.62 lakh crore. Last quarter, the credit numbers were boosted primarily due to demand for funds from telecom companies bidding for 3G and broadband wireless access spectrum.
The tepid credit demand scenario prompted bankers to indicate to the Reserve Bank of India recently that loan growth may fall short of the central bank's 20 per cent target this fiscal. Bankers, however, are hopeful that the traditional busy season (second half of the financial year beginning October) will perk up demand for credit.
Given that banks are unable to lend below their base rate, corporates with good credit rating are increasingly resorting to cheaper alternative fund raising channels such as commercial papers (CP) and non-convertible debentures (NCD) in order to keep a lid on costs. With many banks increasing their base rates by 25-50 basis points in the last one week or so, corporates may continue to find the CP and NCD route more economical to raise funds.
In the reporting quarter so far, banks' deposits have grown by Rs 74,590 crore, as compared to Rs 1,46,130 crore in the previous quarter.
The RBI, in its mid-quarter monetary policy review, cautioned that one important consequence of negative real rates is that banks have seen a deceleration of deposit growth as savers look for higher returns elsewhere. If bank credit is not to become a constraint to growth, real rates need to move in the direction of encouraging bank deposits, the RBI said.
Banks are now trying to attract savers by offering higher interest rates on deposits. In the last one week or so, they have raised deposit rates by up to 75 basis points across maturities.
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