Window dressing by banks in March has been stunning

It’s a practice that commercial banks find hard to resist as the year-end approaches — artificially shoring up their deposit and lending portfolios — but this time around, the scale and speed of the effort is perhaps without precedent.

Consider the figures. Credit-shy banks have lent a mind-boggling Rs 116,461 crore during a span of a mere 14 days ending March 26, 2010.

This is on top of strident increases in the preceding two fortnights — Rs 34,282 crore during the two weeks ending February 26 and Rs 34,017 crore as of the end of the following fortnight.

In regard to deposit mobilisation, too, the banks’ ‘performance’
borders on the incredulous, if the time interval is factored in.

During the final reporting fortnight of March, they were able to attract as much as Rs 83,631 crore, of deposits, again sharply higher than the bloated figures for the preceding two fortnights.
In contrast, the incremental growth in deposits and commercial lending during the fortnight ending February 12, were rather modest at Rs 4,452 crore and Rs 21,986 crore, respectively.

Just how aggressive scheduled commercial banks were in endeavouring to give a flattering account of themselves in terms of two key parameters — deposit accretion and non-food lending — during the last fiscal is reflected in the fact that, over a period of just six weeks ending March 26, 2010, they were able to mop up a staggering Rs 186,371 crore; this represents as much as 28.6% of the total deposit accretion during 2009-10.

In respect of lending, their record is even more “impressive”; at Rs 184,760 crore during these six weeks, their commercial advances during this short time span worked out to nearly 40% of that fiscal year’s total lending.

With five more days to go before the conclusion of the accounting year, one can expect similar mind-boggling increases in deposits and advances.

As such, the full extent of the window-dressing can not be determined at this stage, though even what is in the public domain is such as to evoke bewilderment, if not disbelief.    

Window dressing by banks in March has been stunning
But, even with this last-ditch effort to spruce up their balance sheets as of March 31, 2010, it may be the case of “ too much too late”.

In the aggregate, the Reserve Bank of India’s indicative target of 17% growth in deposits has been just about met; but in the case of non-food credit, as against the pruned target of 16%, the actual spurt has lagged behind at 12.7%.

Clearly, the slackness in credit disbursals during the major part of the year, could not be made up by the Herculean efforts towards the year-end.

However, the large question is, why should banks continue to play this game, despite the fact that the Central bank has frowned upon this practice. Every year, RBI cautions banks to desist from recourse to this habit but in vain.

Top mandarins of commercial banks are under pressure to live up to their commitment made — when the new fiscal year has started — to achieve a certain rate of growth in deposits, advances and profitability.

So, they spare no effort to augment the deposit base and jack up advances by various ruses.

With the balance sheets thus forcibly “ dressed up” at the end of the year, inevitably, there is rewinding of both the deposit and lending build -up in the fortnights that follow the accounts closing.

No one bothers about this let-up in deposits and lending that occurs in April, after the “ bulge” in late February to end-March. RBI is helpless,banks have a free hand in persisting with their dubious practice and public memory is short.