Bank deposits zoom Rs 2 lakh cr in 7 days; Poof, and its gone

by R Jagannathan

Here’s a prediction: in the first week of April, or even the week after, deposits will vanish from the banking system as if they didn’t exist.

Relax. We aren’t predicting robbery or crookery. But now that we are into a new year, windows will be undressed.

Foxed?

Here’s the logic. In the last week of every financial year, everyone likes to bump up numbers. Mutual funds like to shore up their net asset values, companies like to push up sales figures and employees like to claim all their benefits.

[caption id=“attachment_277434” align=“alignleft” width=“380” caption=“In the last week of every financial year, everyone likes to bump up numbers. Banks jack up deposit and credit ratios.”]  [/caption]

But banks will be banks. They like to do their own thing: which is to jack up deposit and credit ratios. And so it was in the last week of March, the latest for which the Reserve Bank of India (RBI) has put out the numbers.

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Here are the “miracles” reported by the banking system.

• Overall deposits are up by a stupendous Rs 208,820 crore - a 3.5 percent gain in the week to 30 March over the previous week ended 23 March. Annualised, over 52 weeks, this means a 180-plus percent growth rate ( see table ).

• Credit has zoomed by Rs 93,160 crore - largely to the commercial (non-food) sector. That’s more than 2 percent in one week, or over 100 percent annualised.

Whoever said high interest rates are holding back credit should have his examined, right?

Well, not quite, since we have to wait for the coming weeks to see this miracle unravel. The high growth in the last week of every financial year is largely artificial - as is visible from this number.

While deposits grew from Rs 59,03,660 crore to Rs 61,12,480 crore, which is a gain of 3.53 percent, or Rs 208,820 crore, the bulk of this came from demand deposits - money that can be withdrawn at will, and which receives no interest (current accounts) or very little (savings bank rate of around 4 percent).

Demand deposits zoomed by Rs 116,200 crore, or 18 percent in one week - which gives you a phenomenal near 1,000 percent annualised growth.

If the growth had been for real, time deposits should have grown equally robustly, but didn’t. They grew by 1.74 percent over the week. But still a robust 90 percent annualised.

Sure, even here there is some window-dressing, but far less, since time deposits cost more to procure even for a week. Demand deposits are easier to cook up with a wink and a nod from corporate customers.

Any bet, the next two weeks will be all decline and fall?

The moot point: since everyone knows that these numbers are fictitious, why does the Reserve Bank allow it to happen? Is this just harmless fun for banks?