Page 56 - BANKING FINANCE APRIL 2024

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time-deposit rates. The share of time deposits in in some quarters, will continue to remain a huge challenge,
incremental deposits has zoomed to 93% in 2023-24 from as retail investors (senior citizens and the like) will always
44% in 2021-22, while that of CASA has dropped from 56% prefer a steady rate of return. That idea was experimented
to 7% in the same period. This pronounced shift towards time with by State Bank of India back in 2001, but did not find
deposits is not a surprise, as CASA deposits are usually meant much traction.
for transaction purposes.
That product will be successful only if the Reserve Bank of
If we look at the instrument-wise financial assets of Indian India issues guidelines to banks directing them to mobilize
households from 2019-20 to 2022-23, it reveals that fresh deposits only at floating rates, as with loans linked to
households are conservative and 94% of flows go towards external benchmarks. Variable term deposit rates could also
fixed-income instruments like bank deposits, small savings be incentivized through differential tax treatment (say, a
schemes, etc, while only 6% flows to markets (equity 1.3% lower tax for those who choose variable term rates). On
and MFs 4.7%). These numbers may have remained at the their own, they lack appeal.
same level in 2023-24.
However, other product innovations like women-centric
Coming back to the broad outlook on deposits, the increased products could emerge as the Indian banking sector prepares
market participation of retail investors will increase the to support India's quest for a $5 trillion economy. Despite
current and-savings account deposits of banks, as it works rising deposits held-and loans taken-by women, very few
in a cycle. Bank deposits will continue to expand, but banks women-centric products are available that are appropriately
exploring variable term deposit rates, as is being suggested designed to serve their needs. (Mint)

Bank loans to industry and services grow, retail lags in February

The pace of expansion in retail loans, hitherto the primary growth lever for several high-street lenders, moderated
in February after the banking regulator enhanced the risk weighting on such exposure over concerns of potential
future defaults. Overall credit demand remained healthy, buttressed by new credit lines to industry and services.
Retail loan growth moderated to 18.1% (year-on-year) in February, compared with 20.6% a year ago, as disbursals
of vehicle and personal loans slowed.
On a year-on-year basis, non-food bank credit climbed 16.5% in February, as compared with 15.9% a year ago, ac-
cording to the latest Reserve Bank of India (RBI) data on sectorial deployment of bank credit.
Loans to real estate recorded a four-fold increase, while loans to services also accelerated. Loan growth to industry
also increased at a faster pace than in the previous year.
Credit to the services sector grew 21.2% (YoY), compared with 20.5% a year ago. Among major contributors to
growth were 'trade' and 'commercial real estate', while loans to NBFC decelerated.
On a year-on-year basis, loans to commercial real estate rose 37.9% in February compared to 8.9% a year ago.
Excluding the merger impact of HDFC with HDFC Bank, the loan growth rate more than doubled to 21% during the
month.
Credit to industry grew by 8.6% (YoY) compared with 6.8% in February 2023. Credit growth to agriculture and allied
activities rose 20.1% (YoY) against 15% a year ago.
The weighted average lending rate (WALR) on fresh loans stood at 9.36% in February 2024 from 9.43% in January
2024, but higher than 9.24% in February 2023. The WALR on outstanding rupee loans was at 9.83% in February,
from 9.85% in January but higher than 9.61% in February 2023.
The share of External Benchmark-based Lending Rate (EBLR) linked loans in total outstanding floating rate loans was
56.2% at the end of December 2023, up from 53.3% at the end of September, while that of MCLR-linked loans was
39.4% from 41.9%in that order.

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