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Deposit growth far from central bank’s target of 18%, banks increase deposit rates in
order to boost mobilization.
Our observations: Tracking Investment and Credit
Cash and lending by the banking system, as observed in the Weekly Statistical
Supplement (WSS) for the fortnight-ended January 28, can be stated as below:
1. Growth in deposit far from central bank’s target. Deposit growth edged
lower to 15.91% YoY compared to 16.44% in the previous fortnight. Despite
persistent increase in the deposit rates, the growth is sluggish owing to the
relatively low or negative returns in a high inflation environment. SCBs raised
the deposit rates to step up their deposit mobilization to support the high
credit growth. Several banks revised their base rates upwards in the range of
25-100 basis points during July-January 2011. However the total mobilization
so far in the FY11 has been INR 4.90trn against a target of INR 8.07trn for
FY11. For the remaining two month of this fiscal, banks have to mobilize
another INR 3.17trn in order to achieve the targeted deposit growth rate.
2. Growth in the non-food credit off-take robust reflecting the growing
credit demand associated with strong economic growth. Credit growth for the
fortnight ended 28-Jan stood at 23.23% Y-o-Y compared to 23.63% for the
previous fortnight. In absolute terms the credit grew by INR 153bn in the
fortnight. Banks have lent INR 4.90trn YTD compared to a target of INR
6.48trn for FY11. Due to the robust credit growth and sluggish deposit growth
the imbalance continues to remain high with incremental non food credit to
deposit ratio soaring to 110% in December. However with increasing lending
rates there has been some moderation in the off take reflected in the CD ratio
which declined by 27bps to 74.95 over the fortnight.
3. M3 growth inches towards the central bank’s target of 17% during the
fortnight. However broad money growth has been below the target for
9MFY11 on account of sluggish deposit growth as well as some moderation in
money multiplier resulting from higher growth in currency. During the
fortnight the multiplier improved by 7bps to 5.0x mainly on account of sharp
decline in the reserve money base to INR 12.50trn from INR 12.87trn a
fortnight ago.
4. SLR investment increased by INR 162bn over the fortnight. Due to the
tight liquidity in the system, banks relied heavily on the LAF facilities to meet
their CRR requirement. Banks borrowed an average INR 1trn throughout the
fortnight ending Jan-28. However GoI accelerated spending in the current
fortnight has reduced its cash balances by INR 400bn which has led to a
significant improvement in the liquidity.
Forex reserves rose modestly by $243mn to $299bn during the week ending Feb-4
on account of the increase in the foreign currency assets. While the foreign
currency assets increased rose $793mn, the value of gold in reserves dipped
$543mn during the week.
CD & CP market remained active as alternative source of finance. Outstanding CDs
saw sharp increase of INR 328bn in the week ended Dec-31, due to higher
dependence of banks to meet the imbalance between credit and deposit.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Deposit growth far from central bank’s target of 18%, banks increase deposit rates in
order to boost mobilization.
Our observations: Tracking Investment and Credit
Cash and lending by the banking system, as observed in the Weekly Statistical
Supplement (WSS) for the fortnight-ended January 28, can be stated as below:
1. Growth in deposit far from central bank’s target. Deposit growth edged
lower to 15.91% YoY compared to 16.44% in the previous fortnight. Despite
persistent increase in the deposit rates, the growth is sluggish owing to the
relatively low or negative returns in a high inflation environment. SCBs raised
the deposit rates to step up their deposit mobilization to support the high
credit growth. Several banks revised their base rates upwards in the range of
25-100 basis points during July-January 2011. However the total mobilization
so far in the FY11 has been INR 4.90trn against a target of INR 8.07trn for
FY11. For the remaining two month of this fiscal, banks have to mobilize
another INR 3.17trn in order to achieve the targeted deposit growth rate.
2. Growth in the non-food credit off-take robust reflecting the growing
credit demand associated with strong economic growth. Credit growth for the
fortnight ended 28-Jan stood at 23.23% Y-o-Y compared to 23.63% for the
previous fortnight. In absolute terms the credit grew by INR 153bn in the
fortnight. Banks have lent INR 4.90trn YTD compared to a target of INR
6.48trn for FY11. Due to the robust credit growth and sluggish deposit growth
the imbalance continues to remain high with incremental non food credit to
deposit ratio soaring to 110% in December. However with increasing lending
rates there has been some moderation in the off take reflected in the CD ratio
which declined by 27bps to 74.95 over the fortnight.
3. M3 growth inches towards the central bank’s target of 17% during the
fortnight. However broad money growth has been below the target for
9MFY11 on account of sluggish deposit growth as well as some moderation in
money multiplier resulting from higher growth in currency. During the
fortnight the multiplier improved by 7bps to 5.0x mainly on account of sharp
decline in the reserve money base to INR 12.50trn from INR 12.87trn a
fortnight ago.
4. SLR investment increased by INR 162bn over the fortnight. Due to the
tight liquidity in the system, banks relied heavily on the LAF facilities to meet
their CRR requirement. Banks borrowed an average INR 1trn throughout the
fortnight ending Jan-28. However GoI accelerated spending in the current
fortnight has reduced its cash balances by INR 400bn which has led to a
significant improvement in the liquidity.
Forex reserves rose modestly by $243mn to $299bn during the week ending Feb-4
on account of the increase in the foreign currency assets. While the foreign
currency assets increased rose $793mn, the value of gold in reserves dipped
$543mn during the week.
CD & CP market remained active as alternative source of finance. Outstanding CDs
saw sharp increase of INR 328bn in the week ended Dec-31, due to higher
dependence of banks to meet the imbalance between credit and deposit.
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