Banks' credit rises over 16% y-o-y, deposits up at 14%

Moneycontrol Bureau

The non-food credit or the amount banks lend to individuals and companies rose more than 16% year-on-year to around Rs 46.74 lakh crore for the fortnight ended September 23, 2012. The growth in bank deposits increased nearly 14% y-o-y to Rs 62.90 lakh crore, according to the latest RBI data released on Wednesday.
During the 15-day period, the non-food credit expanded marginally by Rs 16,800 crore to Rs 46.74 lakh crore. Since April 06 when it was at Rs 46.14 lakh crore, the pace of loan growth has been sluggish, a little above than 1% year till date. Typically, banks' loan books grow at a slower pace in the first half of a financial year (April-September). Bankers however, are expecting faster momentum in loan growth in the second half (October-March), the so-called 'busy' season.
"Credit growth in the first half of the year has been subdued. This was due to the dull economic condition. Policy uncertainty affected the investment climate. Investment decisions have been kept on hold by most of the people. Pick in credit growth will happen due to the policy changes which have been announced by the government a few days back," B K Batra, deputy managing director at IDBI Bank told moneycontrol.com.
Companies which were holding their plans are now likely to revive their held-up investment plans. In the ongoing festival season, lenders see credit offtake coming from retail loans (home and auto in particular) while sectors like FMCG, cement, auto, auto ancillaries will also contribute to credit growth.
Moreover, infrastructure - a sector considered to be a major driver for lenders' loan book is also likely to add to credit expansion in light of policy measures taken by the government to lift investors' mood.
With interest rates going down across the board, companies/individuals can avail cheaper loans. This in turn, will fuel credit demand further.
The Reserve Bank of India (RBI) earlier had projected a growth of 17% y-o-y in the non-food credit for 2012-13. However, the current deposit growth is still below the RBI's projection of 16% for the year.
Banks already started decreasing deposit rates. With the equity market showing sign of revival, products like mutual funds, according to a section of analysts, will grab a significant share of deposits' money. However, bankers think in a different way.
"It is a part of their investible funds for the people who invest in gold and mutual funds. I don’t see any flight of deposits from banks to mutual funds and gold," said Shiva Kumar, the managing director of the State Bank of Bikaner and Jaipur.
"Shifting money from fixed deposits to gold as investment does not happen much in India. People do buy jewelry but not for investment. For large mass of people, mutual fund is still a complicated business. Mutual fund is an alternative but to a limited extent."
saikat.das@network18online.com