Markets

Loan growth at double digit levels continue to outpace deposit growth

Mumbai: Loans growth for the fortnight ended rose to an 18 month high of 11 percent and banks continued to sell down their bond holdings to lend as deposit growth remained muted at less than 5 percent

Bank loan rose 11.1% year-on-year to Rs 82 lakh crore in the fortnight ended January 05, according to the latest data released by the Reserve Bank of India. Banks lent 13.3% or Rs 1.09 lakh loans of the Rs 8.2 lakh loan in a year in the latest fortnight. Bankers say, banks engage in window dressing exercise in any quarter end to show a strong loan book

Sector loan data indicates that much of the growth in loans has been retail and unsecured loans. But large corporates are also slowly going back to banks. Corporate loans, which account for almost 20% of banking sector's outstanding loan portfolio has started growing since August after several months of contraction.

But deposits have not picked up despite quarter end balance sheet boosting efforts. Banks managed to raise over a Rs one lakh crore deposit in the latest fortnight. But total deposits increased only about 4.5% over the same period a year ago.

With banks lowering deposit rates by more than 200 basis points (one basis point is 0.01%) over the last two years, savers are moving away from banks, finding stocks and mutual funds more attractive.

Banks have had to fund the loan book by selling excess bond holding over the year . Their fresh bond purchases were only about Rs 60,000 crore quarter since end September compared to Rs 3 lakh in two previous quarters. A sustained credit demand may force banks to raise rates.

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