Indian Banking System Witnesses Slowdown in Deposit Growth

Despite deposit rates being revised by various commercial banks, the Indian banking system is witnessing a lull in deposit growth, according to data released by the Reserve Bank of India (RBI). On a year-on-year (YOY) basis, the deposit growth in the banking system rose 14.79% (34 bps higher over the previous fortnight) to Rs 46,90,703.28 crore during the fortnight ended September 10. Further, during the previous fortnight ended August 27, 2010; the deposits mobilized by banks grew by 14.45% to Rs 46,70,237 crore. Hence, the deposits collected by banks went up by Rs 20,465 crore, against an increase of around Rs 38,658 crore in the previous fortnight.

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People from the top management of various banks are citing their reasons for this lull. B A Prabhakar, ED, Bank of India (BoI) said, “Like credit growth, deposit growth is looking sticky. It is because people may be holding a lot of cash in hand.” Further, HSU Kamath, ED, Canara Bank, said, “People are putting their money in other schemes like post office savings schemes, mutual funds and stock market investment. With the sensex touching 20,000 mark, equity market investments look attractive to the people. It should be one of the causes of slower deposit growth. Now rate of deposits have gone up by 100-200 basis points across the banking industry, that situation will be corrected soon and deposit growth is expected to pick up by the end of September,” he added.

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Industry experts also believe the current rally in equity markets to be the major reason for this slowdown and argue that this jump has lured people’s attention to equity market instruments from the traditional banks’ term deposits. In this backdrop, Reserve Bank of India (RBI) raised repo and reverse repo rates by 25 and 50 basis points (bps), respectively, on September 16, though most banks are yet to follow suit. Worried over this development, RBI is prodding banks to increase their deposit rates.

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Going further, though the central bank had projected 18% growth in deposits for 2010-11, it has not exceeded 15% in this financial year so far.

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One response to this post.

  1. Technical Overview on Nifty (27th September ‘10)

    Nifty future is getting good buying support at the lower levels and looking technically strong for more fresh up moves. The next technical resistance for nifty future seems close to the level of 6050. Decisive closing above this resistance zone may take up nifty future for the levels of 6100, 1650 in near run. The immediate support for nifty future seems close to the levels of 5935 to 5945. Decisive closing below this support zone may make it slip till the lower levels of 5895 to 5900 in near run. For intraday we recommend long position in nifty future above 6050 for the targets of 6100, 6150 with the intra day stop loss around 5995.

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