4 days ago
Indian Banks Cut High-Cost Funds as Deposits Contract
Banks had slightly less money deposited with them during the two weeks ending August 15.
They also gave out fewer loans during that period.
However, compared with the same time last year, both deposits and loans were much higher.
Analysts think banks may be replacing expensive bulk deposits with cheaper foreign-currency deposits.
These foreign-currency deposits are called FCNR(B) deposits.
Banks collected $64.4 billion through a special Reserve Bank of India facility by August 21.
The facility is scheduled to close on August 31.
One expert said changes in lending can happen because of seasonal patterns and are not currently a major concern.
Aggregate bank deposits fell Rs 6,534 crore and bank credit declined Rs 70,639 crore in the fortnight ended August 15.
Year-on-year, deposits rose 14.7% to Rs 269.3 trillion, while loans grew 18.3% to Rs 220 trillion.
Analysts attributed the deposit contraction to banks reducing expensive bulk or wholesale deposits.
Banks mobilised $64.4 billion in FCNR(B) deposits through the RBI's concessional swap facility by August 21.
The credit-deposit ratio eased to 81.72% on August 15 from 81.96% on July 31.
- Who
- Banks reporting data to the Reserve Bank of India; analysts including Sachin Sachdeva.
- What
- Deposits and bank credit contracted over the fortnight, while both remained higher year-on-year.
- Where
- The Indian banking system.
- When
- The fortnight ended August 15; FCNR(B) data was reported through August 21.
- Why
- Analysts said banks may be cutting high-cost bulk or wholesale deposits while using FCNR(B) inflows to manage funding costs.
Cost-management interpretation
Seasonal-fluctuation interpretation
Meaning of the contraction
Cost-management interpretation
An analyst said banks may be using FCNR(B) inflows to retire expensive wholesale or bulk deposits and manage funding costs.
Seasonal-fluctuation interpretation
Sachin Sachdeva said credit growth can fluctuate month to month because of seasonal factors and did not appear to be a major concern at this stage.
Key facts
- Fortnightly deposit change
- Down Rs 6,534 crore by August 15
- Fortnightly credit change
- Down Rs 70,639 crore by August 15
- Year-on-year deposits
- Up 14.7% to Rs 269.3 trillion
- Year-on-year loans
- Up 18.3% to Rs 220 trillion
- FCNR(B) mobilisation
- $64.4 billion through August 21
- Swap facility deadline
- August 31
- Credit-deposit ratio
- 81.72% on August 15, versus 81.96% on July 31
Quotes
An unnamed analyst at a rating agency
An analyst at a rating agency commenting on banks’ deposit-cost management
“What I am thinking currently is that you are getting that FCNR money and retiring your wholesale deposits so that you can manage your costs. That is the only possible reason.”
m.rediff.com
Sachin Sachdeva
Vice president and sector head for financial-sector ratings
“Credit growth tends to fluctuate month-to-month (M-o-M) and is often influenced by seasonal factors. At this stage, it does not appear to be a major concern.”
m.rediff.com
Sources
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