Despite being flush with funds, the credit off-take for banks has been sluggish in the financial year so far.
Up to September 7, the incremental credit-deposit ratio was lower at 33 per cent as against 43 per cent in the year-ago period.
What this means is that for every Rs 100 that a bank mopped up as deposit it is able to deploy only Rs 33 (Rs 43 earlier) as loan, with the balance getting invested in Central and State government securities.
In the financial year so far, banks saw a surge in deposit accretion at Rs 4,17,367 crore (Rs 3,17,333 crore in the year-ago period) while credit nudged up marginally at Rs 1,38,064 crore (Rs 1,35,636 crore).
Bankers say fresh investment proposals are few and far between.
The slowdown is more palpable in the second quarter than in the first.
In the second quarter so far, bank credit has contracted by Rs 11,153 crore as compared with an increase of Rs 1,49,217 crore in the immediate preceding quarter.
“Not many loan proposals for capital expenditure are coming up for sanction. This is probably reflective of the general slowdown in the economy,” said a senior public sector bank official.
Loan proposals
The big-ticket loan proposals that have come up for sanction in the banking sector so far are from segments such as roads, power and realty.
Even public sector companies, which usually take short-term loans at competitive interest rates, are not undertaking capital expenditure, explained the banker.
Strong companies are taking the commercial paper (CP) route to raise resources as they can get funds-flush banks to invest in these financial instruments below their benchmark lending rate (the base rate).
Though banks cannot give loans below their base rate, they can invest in CPs issued by corporates below this benchmark rate, which, depending on the bank, varies between 9.50 and 10.50 per cent.
“Not many corporates are seeking enhancement in working capital limits. What this means is that business is sluggish for them,” said another banker.
With big-ticket loan proposals not happening, banks have shifted their focus to retail customers, offering home and auto loans at competitive rates by announcing festival bonanzas.