MUMBAI (Reuters) – Indian banks’ advances grew marginally in the first quarter of the fiscal year as corporate borrowing was low due to muted economic growth prospects, triggering concerns that lenders could miss the Reserve Bank of India’s yearly projections.
Bankers said the pace of loan and deposit growth was also slow in the June quarter because typically corporates prefer to borrow in the second half of the fiscal year.
Banks’ credit grew 1.2 percent in the first quarter of the fiscal year that started in April, while deposits rose 1.9 percent, data released by the RBI showed on Wednesday.
Bankers are not confident of achieving RBI’s loan and deposit growth projections with the economy not showing signs of a revival. The country’s economic growth slumped to its lowest level in nine years to 5.3 percent in January-March.
“It (RBI’s projections) will be slightly stretched,” said a senior official at a state-run bank, adding that advances are likely to grow at 15 to 16 percent, and deposits 14 to 15 percent.
The RBI projects credit growth at 17 percent in 2012/13 and deposit growth at 16 percent.
“If the economy progresses well in the second quarter and in the following quarters, the target set by the Reserve Bank of India is achievable,” Gauri Shankar, chief financial officer at state-run Bank of India, said.
Banks’ incremental credit-deposit ratio, which reflects fresh demand for loans in proportion to deposits, stood at just 48 percent compared with 51 percent in the same period last year and 84 percent in 2011/12.
Banks’ outstanding credit was 47,608.47 billion rupees as of June 29, while deposits at 62,291.73 billion rupees.
“There is not much of a demand. New projects are not coming up, and disbursement is not happening. Also, some window dressing happens at March-end,” a senior official at another state-run bank said.
In the absence of demand for credit, banks continued to park their money in central and state government bonds. Investment in government bonds and other approved securities rose 6.7 percent to 18.6 trillion rupees in the three months to June.
India’s industrial output likely accelerated at a modest pace in May on an annual basis from barely any growth at all in April, held back by deep contractions in capital goods, a sign that the pace of overall economic growth remains weak, a Reuters poll showed.
(Reporting by Shamik Paul; Editing by Anand Basu)