Economic Times: September 19, 2016
New Delhi: Bank deposits growth rate has surged to its highest in more than a decade in two weeks to September 2 aided by the flow from the 7th Pay Commission payments and the credit-to-deposit ratio doubled to 14%, though it is still a fraction of what it used to be in peak.
In the fortnight ended September 2, the period when the revised salary was credited to employees' accounts, bank deposits rose 1.3% to Rs 1.3 lakh crore, according to latest RBI data. This is almost a fifth (Rs 5.3 lakh crore) of what banks have raised in the fiscal so far. This is the highest normal time fortnightly growth in deposits. One sees banking sector deposit growth of over Rs 1lakh crore only during the end of a quarter.
"It is very likely that this was because of the first payout of the 7th Pay Commission salary and pension increases, comprising of arrears of FY16 and FY17. This additional accretion to bank deposits will continue through FY17," said Saugata Bhattacharya, chief economist, Axis Bank.
Even credit rose to Rs 48,600 crore, or 0.7%, in the fortnight, accounting for more than half of the close to Rs 75,000 crore lent by the entire banking sector. Incremental credit deposit ratio rose to 14% as on September 2, up from just 6.5% in the previous fortnight.
"This (7th Pay Commission award) might induce a further increase in retail credit offtake, particularly during the festival season, preliminary signs of which are visible in credit offtake," said Bhattacharya.
Many banks, including public sector banks, are tapping this segment by wooing them with several attractive loan schemes. Bank loan growth has been very sluggish so far this year with only retail loans propping up loan books. Retail loans grew 19% year-on-year compared to overall bank credit growth of 7.7% while loans to industry has remained almost flat, according to RBI data.
The multiplier effect of the pay commission award is expected to push economic growth as well. "Going forward, we expect India's economic recovery to gain traction led by improvement in consumption as increase in disposable incomes following 7th pay commission implementation and recovery in rural incomes following satisfactory performance of monsoon amid benign inflation pave way for improved demand conditions." said Shubhada Rao, chief economist, Yes Bank. "We expect FY17 GVA growth to improve to 7.8% from 7.2% in FY16."
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