Banks witness dip in deposits & loan demand; park funds in mutual fund schemes

By the end of fortnight on April 23 banks have witnessed reduction in loan demand and deposits. According to RBI's latest data the deposits have dipped by Rs 23,328 crore during the fortnight ending April 23 to Rs 4,506,747 crore. Both demand deposits and term deposits have dipped by Rs 20,834 crore and Rs 2,494 crore, respectively, during the fortnight.

During the fortnight as on April 23 the loans have dipped to 1,437,363 crore from Rs 26,483 crore. On the other hand both food credit- loans given to the government for food procurement and non-food credit- loans to individuals and businesses, have dipped by Rs 170 crore and Rs 26,313 crore, respectively. While investments in government and other approved securities have dipped by Rs 17,169 crore to Rs 1,437,363 crore during the fortnight.

Generally in the beginning of the fiscal banks do not focus much on business as they are busy in previous year’s accounts. The Indian economy is almost back on the track and industry is also reviving, thus banks are expecting loan demand to increase so the focus will be on increasing the deposits to fund the loan demand. DL Rawal, chairman and managing director of Dena Bank, said, this year credit demand will increase as corporates will be taking the loan amount which was sanctioned last year. He told his bank’s loan book is growing by 22% this year.

S Sridhar, CMD of Central Bank of India also said his bank is witnessing strong demand for loans (25%) and added, the bank will be focusing on raising low-cost certificate of deposits to raise resources to meet the growing loan demand.

However RBI in its annual monetary policy statement has given indication about loan growth at 20% for FY11, way above 16.9% loan growth achieved in FY10.

As banks are not seeing any increase in the loan demand banks are parking their funds in mutual funds. Although latest figures are not available but, approximately the banks have collectively parked more than Rs 100,000 crore in various mutual fund schemes.