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Bank deposits outpaced credit growth in 2013

Thursday, 9 January 2014 - 11:32am IST | Place: Mumbai | Agency: DNA

In a trend reversal, bank deposits grew faster than credit in the year 2013 with some help from the Reserve Bank of India (RBI). The central bank’s master stroke of making foreign currency deposits lucrative for Non-resident Indians (NRIs) paid off.

Credit growth, on the other hand, was subdued reflecting the state of the economy marred by slowdown and stalled infrastructure projects.

Bank deposits grew by 15.9% annually as of December 27, 2013 while credit growth clocked 14.5% in the same period. The year 2012 had ended with credit growth at 16.3% and deposit growth lagging behind at 13.3% according to data from RBI.

While the break-up of NRI and domestic deposits is not available yet, Arun Kaul, chairman and managing director of UCO Bank said that the flows into Foreign Currency Non-resident (FCNR) deposits had a major contribution this year.

In order to help prop up rupee and shore up foreign exchange reserves, the RBI had opened a special window for banks to swap their FCNR deposits and overseas borrowings with rupee funds subject to certain conditions. Between September and November, the window attracted $34 billion. “This was a policy driven inflow,” said D K Joshi, economist at CRISIL.

“If it wasn’t for the significant increase in foreign currency deposits, deposit growth would have been largely on expected lines,” said Aditi Nayar, senior economist, ICRA. Economists said that the spike in deposits was a one-off event and eventually, growth figures may follow the trend projected by the central bank that indicates deposit growth at 14% and credit growth at 15% for the current financial year.

“Deposit mobilisation is still a problem,” said Indranil Pan, economist at Kotak Mahindra Bank adding that high inflation may continue to hurt deposit growth in the country. He said that inflation is expected to remain around 8.5% which may not allow bank deposits to give any real rate of return this year too.

Credit growth, too, may remain tepid. “Credit growth will remain subdued in 2014 due to overall economic slowdown,” said Joshi.

MTM norms to become applicable to regional rural banks from fiscal 2015
The RBI said the exemption of mark-to-market norms given to regional rural banks for their investment in securities eligible as statutory liquidity ratio will be withdrawn with effect from April 1.
Accordingly, regional rural banks will now have to introduce mark-to-market on their SLR gilts from Apr 1. Till financial year 2012-13, these banks were exempted from the mark-to-market norms.

The RBI on Thursday issued revised guidelines for classification and valuation of investments for regional rural banks. The central bank has asked regional rural banks to classify their entire investment portfolio as on April 1 under the held-to-maturity, available-for-sale and held-for-trading categories. However, the risk-weights assigned to the various securities remain unchanged. “The first such revaluation may be done as on April 1, 2014, for the securities under the Held for Trading and Available for Sale categories,” the RBI said. It has directed RRBs to formulate a board-approved investment policy to meet requirements on classification, shifting and valuation of investments under the revised norms.

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