RBI Reserve Bank of India
RBI Reserve Bank of IndiaReuters file

Bank deposits witnessed a 9.72 percent growth over a 12-month period ended April 1, 2016, on a year-on-year basis, lower than the five-decade low of 9.9 percent in the previous fortnight. Credit grew 11.28 percent over the same period, according to Reserve Bank of India (RBI) data released on Wednesday.

The cumulative deposits of all scheduled commercial banks (SCBs) stood at Rs. 97, 20, 800 crore (Rs. 97,208 billion) as on April 1 this year as compared with Rs. 88,59,400 crore (Rs. 88,594 billion) as on April 3, 2015. Deposits stood at Rs. 93,78,600 crore (Rs. 93786 billion) as on March 18, 2016.

Low bank deposit growth rate has emerged as a cause of concern in the context of the Indian government slashing interest rates on small savings, bringing them on par with bank deposit rates.

An analyst at India's largest lender State Bank of India (SBI) had attributed it to high real interest rate, prompting people (depositors) to withdraw more and spend more.

"Deposits with SCBs have remained sluggish with a meagre growth of 9.9% in FY16 (till 18 Mar'16, a 53 year low). We believe that given high real deposit rates are more the by-product of lower inflation, such negative causation may be resulting in people to spend more/leakage through currency," wrote Soumya Kanti Ghosh, chief economic adviser, State Bank of India, in his April 12 note.

Credit growth

Advances rose 11.28 percent for the 12-month period ended April 1, 2016, to Rs. 73,02,600 crore (Rs. 73,026 billion) from Rs.65,62,000 crore (Rs. 65,620 billion) as on April 3, 2015, the RBI data showed. Advances stood at Rs. 70,61,700 crore (Rs.70,617 billion) as on March 18, 2016.

India has been grappling with the twin problem of rising non-performing assets (NPAs) of its public sector banks and capital shortage leading to constraints in lending. In the union budget for 2016-2017 presented in February this year, Union Finance Minister Arun Jaitley announced a capital infusion plan of Rs. 25,000 crore for public sector banks in fiscal 2016-2017. 

The S&P BSE Bankex was up 2.56 percent at around 2.30 p.m. on Thursday on the BSE.