Bank deposits shrink due to advance tax payments
By Neelima Shankar
Dec 31, 2009
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While there has been an improvement in the credit growth, deposits could soon be a matter of concern for banks.During the fortnight ended December 18, 2009, bank credit grew Rs. 21,593 crore while deposits fell Rs. 21,873 crore.

Currently most banks are offering 6-6.5 percent on one year deposit , the lowest in recent times, while inflation based on the wholesale price index touched a 10-month high of 4.78 percent in November.Bankers attribute this decline in deposits to advance tax payments by companies.

The Reserve Bank data reveals that bank credit grew 11.25 per cent year-on-year up to December 18. Credit offtake stood at Rs 68,136 crore as against Rs 1,02,930 crore in the second quarter of this financial year.

"Most documentation and disbursement takes place in the last quarter. We expect the credit growth to be around 15 per cent in this financial year. Since credit growth was not picking up, we had moderated our deposit growth. We are focusing more on CASA (current account, savings account), which is growing at 23 per cent," said Bank of India Executive Director M Narendra.

Though the banks are far from the 18 percent mandated target, the bank executives say that the target is not difficult to attain.
Bank of India is hopeful that its credit target would grow at 17 percent during the third quarter.

Time deposits declined Rs 21,421 crore while demand deposits fell Rs 452 crore.

"The deposits are not a concern as companies have availed of funds to pay advance tax on December 15 and the money will come back to the system," added Narendra.

Union Bank of India, another public sector lender expects the credit growth to be around 13 percent during the third quarter. The executive of the bank, S Raman said that due to lack of credit off take, banks had not focused on their deposit base.


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