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Jul 12, 2012, 08.23 AM IST
The finance ministry asked banks to ramp up their savings deposits growth as this will help the government to improve the country’s ratio of savings deposits to GDP. Lenders should also achieve 30% growth in retail loans excluding SME and agriculture,
The finance ministry asked banks to ramp up their savings deposits growth as this will help the government to improve the country's ratio of savings deposits to GDP. Lenders should also achieve 30% growth in retail loans excluding SME and agriculture, it said at a recent meeting with the bosses of state-owned banks in New Delhi.
Three senior bank officials familiar with the development confirmed it to Moneycontrol.com.
"Domestic savings rate as ratio of gross domestic product (GDP) currently stands around 33%. The government plans to take it to 40% over a period of time. Hence, the FinMin wants more mobilization of household savings through banks," said a banker on condition of anonymity, adding that India is trying to match up China, which enjoys 40% such ratio presently.
After the deregulation of savings deposits accounts, banks are now free to tweak rates. Small private sector lenders like Yes Bank , IndusInd Bank and Kotak Mahindra Bank have already hiked their savings account rate upto 7%. With larger share of savings deposits, PSU banks cannot afford to do the same. It will impact their net interest margin--the difference between interest earned and interest paid out.
Accordingly, they are planning to expand their base through other measures. Those include reducing minimum balance from Rs 500-1,000 to below Rs 500 based on locations, adding insurance cover to savings account holder and waiving service charges in select categories for maintaining higher balances in savings account and incentivized schemes.
Overall savings in the country is falling due to lower GDP growth coupled with higher rate of inflation. Industry average would around 12-13% as against 18-19%, recorded when GDP was at its peak. "The only way, we can mop up savings deposits is through strategic measures," said a retail head of a Mumbai-based bank, who manages a portfolio of Rs 60,000 crore savings accounts.
Banks will mostly penetrate the unbanked areas to increase the number of savings accounts. Lenders will reach those districts where they are mandated as lead bankers. For example, a mid size bank, which is the lead lender for around 50 districts across India will initially approach customers there.
For retail loans, banks still see opportunities among new home buyers. The demand, according to an official from a large bank, is not diminished for those who buy home to live in. It is only the investment segment where requirement is tepid.
"We will be tapping high value home loan buyers above Rs one crore, rather than pushing for auto or personal loans. It will help expanding the book fast," he commented.
Retail loans grew around 15-16% on an average in FY12 for the entire industry. However, banks are confident of attaining 30% mark provided interest rates do no play a spoilsport. "It all depends on interest rates. If RBI continues to hold rates in a bid to tame inflation, banks may not achieve this. We would end up the year with 20% growth in FY13," said an executive director of a mid size bank.
The finance minister Pranab Mukherjee met all chairman and managing directors of public sector banks to take stock of their financial performance.
Tags: Retail loans, Banks, finance ministry, , Pranab Mukherjee , savings accounts., incentivized schemes., insurance cover, household savings , household savings , gross domestic product, Yes Bank, Small private sector lenders, insurance cover, Saikat Das
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