Deposit growth slows to 53-yr low of 9.1% in FY16

MUMBAI: Even a last fortnight surge could not help bank deposits achieve a double-digit growth in 2015-16. Bank deposits grew at 9.1% in FY16 despite rising Rs 3.4 lakh crore in the last fortnight of March 2016. The last time deposits grew at a slower rate (6.5%) was in the fiscal ended March 1963, the year Raghuram Rajan was born, Jawaharlal Nehru was the Prime Minister and the country was recovering from the Indo-China war.

Data released by the RBI showed that bank deposits as on April 1, 2016 stood at a little over Rs 97.2 lakh crore as compared to Rs 89.1 lakh crore on April 3, 2015 - an increase of a mere 9.1%. As compared to this, bank lending grew 10.2% from Rs 68.3 lakh crore to Rs 75.3 lakh crore. The exact numbers at March-end will take a few weeks until banks compile annual numbers. But the fortnightly deposit and credit numbers (reported by banks every alternate Friday to the RBI) do provide an indication to how the year has been.

Although in absolute terms, fresh deposits are more than the loans given during the year, the money available for lending was less. This is because one-fourth of the deposits have to be invested in government bonds and to meet the cash reserve ratio requirement.


According to RBI governor Raghuram Rajan, the rate of deposit growth was bound to moderate with inflation. "One of the things you have to be careful about is all these things are measured at the old rates of inflation and given that inflation has come down, 15-16% increase in deposit growth rates is probably not something that you could anticipate," Rajan had said in his interaction with the media after the monetary policy announcement earlier this month.

Bankers expect the deposit growth to pick up pace during the current fiscal. "In FY16, deposit growth declined to 9.9% (as on March 18, 2016) from 10.7% a year ago. However, with the rates on the small savings schemes having being cut, the diversion of deposits into these could be lower. Also, with income levels likely to increase due to pay commission and favourable monsoons, that could elevate rural incomes, which could find its way into deposits," said Madan Sabnavis, chief economist, CARE. The rating agency has projected a deposit growth at 12-13% for FY17.

Besides lower inflation, Rajan had said that in the last quarter of FY16 there have, however, been some developments which have sucked out deposits. "For example, the issuance of tax-free bonds, the rush to get into the small savings before those rates expire and the new rates come in. And remember, the new rates are still reasonably attractive and therefore we need a continuation of this process to make them consistent with deposit rates. So my sense is this will take a little bit of time before deposits start coming back up. But I think that even with 9-9.5% growth, it is nothing to be sneezed at, it is reasonable growth," Rajan had said.