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Liquidity continues to be tight for banks

Liquidity continues to be tight for banks
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First Published: Thu, May 19 2011. 11 20 PM IST
Updated: Thu, May 19 2011. 11 20 PM IST
Banks’ credit-deposit ratio, at 74.4% as on 6 May, is the highest in at least a decade for this time of the year. It’s best to compare credit-deposit ratio at the same time of the year because it varies seasonally. A high ratio means that the growth in deposits is not being able to keep up with the growth in advances. During the month from 8 April to 6 May, bank deposits shrank by Rs8,943 crore, while credit rose marginally.
Also see | Liquidity continues to be tight for banks (PDF)
In the months ahead, though, credit growth should slow as the economy cools, while deposits should rise as deposit interest rates have increased. The growth in demand deposits with banks is now negative on a year-on-year basis, as depositors shift funds to high-yielding term deposits. Together with higher savings bank deposit rates, this will affect banks’ cost of funds, while lower credit demand will curb their ability to pass on costs.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Thu, May 19 2011. 11 20 PM IST