CREDIT OFF-TAKE FROM BANKS NOT ENCOURAGING SO FAR THIS FISCAL

Even as banks are seeing a robust accumulation in deposits, credit pickup has been dismal in the April-June quarter so far.

Thanks to the rising deposit rates, banks have mobilised four-and-a-half times more deposits (about Rs 1.40 lakh crore) in the reporting quarter so far (up to June 17), against about Rs 31,000 crore mobilised in the corresponding period last year.

The interest rates on term deposits (of more than one year maturity) of major banks have increased to 8.25/9.10 per cent (as on June 10, 2011) as compared to 6.00/7.50 per cent last year (as on June 11, 2010), according to Reserve Bank of India data.

The RBI has upped key short-term rates 10 times since February 2010 to fight the stubborn inflation. Consequently, the deposit rates and lending rates have also moved up, thereby ensuring monetary transmission.

The reverse repo rate (the interest paid by the RBI to banks on surplus funds parked with it) has gone up by 325 basis points (bps) and the repo rate (at which the RBI lends funds to banks) rose by 275 bps since February 2010. Currently, the repo rate is 7.50 per cent and the reverse repo rate is 6.50 per cent.

NoT-so-healthy

While deposits inflow has been healthy for banks, the picture on the credit front is not encouraging.

Outstanding credit has come down by about Rs 84,500 crore in the reporting quarter so far, against an increase of Rs 70,000 crore in the corresponding period last year.

Typically, the first two quarters are dull. The increase in bank credit in the first quarter last year was on account of the licence fees paid by telecom companies which won the bids for the 3G spectrum, said a banker.

“The credit off-take scenario will improve in the third and fourth quarters. Given that interest rates have moved up and could go up further, banks will tread carefully when it comes to sanctioning loans as projects with high element of risk could come up for funding,” said Mr P Sitaram, Chief Financial Officer, IDBI Bank.

As for good projects backed by blue-chip companies, Mr Sitaram said, they may either depend on internal accruals or delay them due to high interest rates.

In sync with the increase in deposits, banks' investments in statutory liquidity ratio securities (or government securities) also jumped by about Rs 1.05 lakh crore in the quarter so far, against around Rs 31,000 crore in the corresponding period last year.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article2145089.ece