Magic Of March --Bank Deposits Beats Credit Growth Inn FY13

Rise in deposits beats credit growth in FY13

The RBI had projected credit and deposit growth at 16% and 15% respectively--Business Standard

The government’s attempts to restrain public sector banks from rushing for business towards the end of the financial year to meet targets proved futile, with a third of the deposits in 2012-13 accumulated in March.

According to data released by the Reserve Bank of India (RBI), for the year ended March, deposits stood at Rs 10.27 lakh crore, recording a rise of 17.4 per cent year-on-year. In March, banks mopped Rs 3.75 lakh crore.

Total bank credit in 2012-13 stood at Rs 7.8 lakh crore, a rise of 17 per cent. Of the total credit, Rs 2.7 lakh crore was disbursed in March. This is the first time since 2009-10 that annual deposit growth outpaced credit growth. For 2012-13, RBI had projected credit growth of 16 per cent and deposit growth of 15 per cent.

The finance ministry had taken several steps to restrain government-owned banks, which control 70 per cent of the market, from rushing for funds towards the end of the financial year. In March 2012, a rush for funds had resulted in a steep rise in short-term rates, with rates for three-month certificates of deposit exceeding 12 per cent. This had increased the cost of funds for banks and exerted pressure on margins.

As a result, the ministry had told banks to ensure their bulk deposits (including certificates of deposit) didn’t exceed 15 per cent of total deposits. Banks that didn’t adhere to this were asked to do so by March 31. Later, however, the ministry had given banks more time to comply with the norm. This year, short-term rates exceeded nine per cent, owing to a fall in interest rates.

The finance ministry had also asked banks to quote bulk deposits at more than the card rate. A few years ago, the practice of having a deposit growth target for public sector banks was done away with, and this was replaced by a targeted growth in current account and savings account deposits, which were low-cost in nature.

After a similar rise in March last year, both credit and deposits (outstanding) had seen a fall in the first fortnight of April. Bankers expect a similar situation this year, too.

http://www.business-standard.com/article/finance/rise-in-deposits-beats-credit-growth-in-fy13-113041200366_1.html

FinMin asks PSBs to restrict bulk deposits to 15%

NEW DELHI, JUL 19:  

The Finance Ministry has asked public sector banks (PSBs) not to accept bulk deposits beyond 15 per cent of total deposits to improve asset-liability management.

“Ten per cent is the bulk deposit above the card rate and 5 per cent is the CDs (certificate of deposit). With an overall cap of 15 per cent banks have flexibility,” the Department of Financial Services Secretary, Mr D K Mittal, said on the sidelines of FIEO meet here.

A circular in this regard has been issued by the Ministry to the banks recently.

“It has a huge risk to us as a banking system. I don’t want to comment on that,” he said when asked for the response of the banks on that.

However, bankers are of view that putting a ceiling on the bulk deposits would reduce the flexibility to cut retail fixed deposit rates in a declining rate cycle. This would mean pressure on NIMs (net interest margin) of public sector banks.

According to some statistics, State Bank of India, Allahabad Bank and Indian Bank have bulk deposits lower than 15 per cent of their total deposits.

However, Canara Bank has bulk deposit of 43 per cent, followed by OBC at 28 per cent of the total deposits as of March 2012.

Terming non-performing assets (NPAs) in the banking system as a “cause of concern”, Mittal said, it is a global phenomenon and it is not restricted to India.

“NPA does not mean that assets have been closed. They only mean that assets have some stress on that and they are not able to pay debt as per the schedule. It means it is not operational,” he added.

http://www.thehindubusinessline.com/industry-and-economy/banking/finmin-asks-psbs-to-restrict-bulk-deposits-to-15/article3657857.ece