Decline in bank loans and deposits segments

In the past few months commercial banks have witnessed strong growth in loans and deposits but on fortnight ended July 17 saw a dip in these segments.

As per the latest data released by Reserve Bank of India (RBI) the outstanding of bank loans has declined to Rs 27,77,567 crore as on July 17, which is down by Rs 21,185 crore from the previous fortnight’s levels. There has been decline in both food credit – loans given to Food Corporation of India for grain procurement—and non-food credit, comprising loans to individuals, farmers, corporates and other businesses, by by Rs 9,526 crore and Rs 11,659 crore respectively during the fortnight.

As per the latest data of bank lending, deposits and investments there might be indications of reversal of fund flows from and into the banking sector, as such the previous fortnight had coincided with a quarter-end, it is the time when banks usually are inclined to load their loan books, so that their balance sheet numbers look better.

Earlier M Narendra, executive director, Bank of India has said businesses can put borrowing on hold as they expecting rates to come down. Also many businesses preferred to wait for the budget to get a clear picture on the economic front. Mr Narendra further added, “Loan demand should gather momentum by the end of September with demand expected from agriculture and infrastructure sector”.

According to RBI report on the macro and monetary developments in the economy the oil and fertilizer companies have done the repayment of over Rs 18,000 crore until May this year depicting gloomy credit growth figure for the year. On the other hand there has been decline of Rs 12,727 crore to Rs 13,34,720 crore in bank investments in government and other approved securities, as on July 17. The dip in investment in government paper has been of Rs 12,427 crore while in other approved securities the dip is of Rs 300 crore.

In case of liabilities the deposits have also witnessed dip in the latest fortnight. As on July 17 the total deposits mobilized by banks stood to Rs 40,10,052 crore which is down by Rs 18,655 crore from the previous fortnight. There has been decline in both demand and term deposits, by Rs 16,275 crore and Rs 2380 crore respectively. A public sector bank officer pointed out currently banks are reducing deposit rates therefore many depositors are going slow on investing their money in deposits.