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Aggregate deposits with commercial banks up 4.6 pc

Our Bureau

MUMBAI, Aug. 28

THE aggregate deposits of scheduled commercial banks have increased by 4.6 per cent at Rs. 37,081 crores during the first quarter of 2000-2001 as against 2.1 per cent in the year ago period, according to the Annual Report of the Reserve Bank of India.

During the first quarter, bank credit increased by 4.4 per cent at Rs. 19,303 crores, with food and non-food credit rising by Rs. 7,491 crores and Rs. 11,812 crores respectively. The pick-up in non-food items in the first quarter of this year against a d ecline of 1.0 per cent during 1999-2000 (up to July 2, 1999) indicated a continuity in the industrial recovery and the effect of the sharp increase in credit in the fortnight ended April 7, 2000, the report stated.

Scheduled commercial banks' investments in Government securities decelerated to 6.5 per cent from 9.8 per cent in 1999-2000 (up to July 2, 1999). The acceleration in non-food credit off-take and lower growth in investments in Government securities were f acilitated by the reduction in CRR announced in April 2000, the report said.

According to the report, the year-on-year rate of inflation as measured by the WPI during the first quarter of 2000-2001 has increased due to a one-time hike in the prices of electricity and urea N content and fuel items effected in February and March 20 00 respectively, and also the rise in prices of primary articles.

The rate of inflation was high at 6.8 per cent as on April 1, 2000, and remained above 6 per cent till end-June 2000. Among the major groups of the WPI, the fuel group exhibited the maximum increase of 3.0 per cent over the year-ago period, while the pri mary articles group increased to 4.4 per cent as against a marginal increase of 0.1 per cent as in June 1999.

Notwithstanding the pick-up in credit growth, banks sharply increased their investments in Government securities by 24.7 per cent at Rs. 55,239 crores in 1999-2000 (19.4 per cent). The share of banks' incremental investments in Government paper to increm ental deposits jumped to 55.6 per cent in 1999-2000 (31.4 per cent) and the share of lending to the Government in the overall deployment of resources by scheduled commercial banks was at 42.9 per cent (35.1 per cent), the report stated.

Currently, the banking system holds Government and other approved securities of around 34.5 per cent of its net demand and time liabilities as against the requirement of 25 per cent. The excess SLR holdings by banks amounted to Rs. 85,000 crores as at th e end of March 2000.

According to the report, banks' preference for Government securities, despite a reduction in the stipulated SLR to the statutory minimum of 25 per cent, was prompted by the higher capital adequacy requirement of 9 per cent and the prospect of reaping cap ital gains in the context of a decline in the market yield of Government securities. This, the report said, could have implications on the interest rate spread of the banking system given the rigidity in the cost structure of funds mobilised by banks.

Bank credit grew by 18.2 per cent at Rs. 67,121 crores (13.8 per cent) in 1999-2000 due to the revival in industrial activity. The increase in bank credit was markedly higher than the average of 15.6 per cent recorded in the 1990s (up to 1998-99).

Net domestic credit (NDC), including commercial banks' investments in commercial paper (CP), public and private sector bonds, debentures, preference shares and equity shares, recorded a lower increase of 16.1 per cent during 1999-2000 (16.9 per cent).

Net bank credit to the Government was at 14.2 per cent -- Rs. 55,077 crores -- during 1999-2000 (17.0 per cent). While the investments of scheduled commercial banks in Government securities went up by 24.7 per cent during 1999-2000, the net RBI credit to the Government recorded a decline of 2.8 per cent, brought about by a reduction in net Reserve Bank credit to the Centre by 3.8 per cent.

The Central Government's account with the RBI showed a surplus of Rs. 5,587 crores as against a deficit of Rs. 11,800 crores in 1998-1999. The ratio of scheduled commercial banks' incremental investments in G-Secs in the incremental net bank credit to th e Government increased to 100.3 per cent during 1999-2000 (64.7 per cent).

Bank credit to the commercial sector accelerated to 16.6 per cent -- Rs. 82,548 crores -- during 1999-2000 (14.5 per cent). The resource flow from bank and non-bank sources, including capital issues, GDRs, ADRs, FCCBs, CPs and borrowings from as well as bills discounted with financial institutions to the commercial sector increased by Rs. 1,51,787 crores in 1999-2000 (Rs. 1,27,952 crores).

Scheduled commercial banks' non-SLR investments expanded to Rs. 12,441 crores in 1999-2000 (Rs. 15,921 crores). Consequently, banks' non-SLR investments decelerated to 25.7 per cent (49.0 per cent). Nonetheless, the total flow of funds from scheduled com mercial banks to the commercial sector (non-credit and non-SLR investments) grew by 17.7 per cent at Rs. 70,687 crores (16.4 per cent), the report said.

Currency with the public expanded by 11.7 per cent (Rs. 19,761 crores) in 1999-2000 as against 16.1 per cent in the previous year. Aggregate deposits decelerated to 14.5 per cent (Rs. 1,17,108 crores) during the year 1999-2000 (20.2 per cent) because of subdued growth in commercial banks at 13.9 per cent. The sluggish accretion to banks' fixed deposits can be partly attributed to the fact that interest rates on bank deposits were revised downwards while the return on other financial assets, such as equi ties, remained strong, the report stated.

During the year 1999-2000, broad money supply (M3) increased by 13.9 per cent (Rs. 1,36,182 crores) as compared to 19.4 per cent in 1998-90. The net of Resurgent India Bonds (RIBs) for 1999-2000 worked out to 14.1 per cent as compared to 17.3 per cent in the previous year.

The expansion in food credit was at Rs. 8,877 crores during 1999-2000 (Rs. 4,331 crores). The conventional non-food bank credit showed a higher order expansion of 16.5 per cent at Rs. 58,246 crores (13.0 per cent). On an average, the year-on-year month-e nd non-food credit growth rate was higher at 15.4 per cent (14.4 per cent).

Reserve money increased at a slower rate of 8.1 per cent at Rs. 20,969 crores during 1999-2000 (14.6 per cent), due mainly to a reduction in reserve requirements and impact of the increasing market orientation of monetary policy operations on the RBI's b alance sheet.