credit growth in India is at a three-year high and is witnessing further growth as economic activity picks up, but has grown at a very slow pace Deposit could send banks Analysts and bankers say the rush for money and the rise in quick deposit rates.

Deposit growth has declined as higher inflation has resulted in less savings, as depositors are choosing to invest money in stocks and mutual funds in search of better returns. Mrs. Sabnavischief economist at the state-owned lender

,

To boost its deposit growth, the country’s largest private lender,

has launched a short-term campaign for Indians residing abroad to increase their deposits by offering higher interest rates on non-resident accounts. Analysts expect other lenders to follow in similar footsteps.

As central bank measures gradually flush out surplus money in the system, banks’ margins and their profitability may come under pressure, forcing them to not only increase deposit rates, but potentially more expensive ones. One also has to go to the capital markets to raise money. to meet credit demand,

This could worry investors, who are already holding back due to global factors, and could send banks’ stock prices further down.

rating agency

It said in a note last week that it expects banks to “start aggressively chasing deposits, which will also lead to a hike in deposit rates.”

Indian banks’ deposit growth, currently at 9.8%, has been in the single digits for a major part of the last 14 months, while Credit Growth – having touched a record low of 5.6% in FY11 – has nearly tripled to 14.4% in the fortnight to July 1.

Retail loan growth which includes personal loans, mortgages, auto loans, is accelerating rapidly and is outpacing corporate credit.

“Personal loans have been the main growth driver for the Indian banking sector during the past few years, as NPAs (Non-Performing Assets) and deleveraging have led to corporate debt stalling,”

Said in a report earlier this week.

CARE said that while the prospects for credit growth look promising in the times to come, higher inflation and rate hikes are likely to have an impact.

The credit-deposit ratio of banks – currently 73% of banks’ total deposits being lent – has been rising steadily, indicating that their earning potential is improving as well.

But as credit demand rises, funding could be under pressure unless deposit growth matches up.

A senior executive said, “If the trend continues in the next few months, we will have no option but to increase the deposit rate as the market conditions are also not very favorable for us to go into the market to raise growth capital.” ‘ State owned bank.