India banking sector slows on sputtering economy

Banks' credit grew just 1.2% in the first quarter of the fiscal year that began in April.

A slowdown in loan and deposit growth among Indian banks adds more worries to India’s sagging economy.

The Reserve Bank of India, the central bank, said banks' credit grew just 1.2% in the first quarter of the fiscal year that began in April while deposits increased 1.9%.

Indian banks' advances grew slowly in the first quarter of the fiscal year due to tepid corporate borrowing because of lower economic growth prospects. The slowdown fueled concerns that lenders could miss the central bank's yearly projections.

Bankers, however, said the pace of loan and deposit growth slowed in the June quarter because companies prefer to borrow in the second half of the fiscal year.

Bankers said they will be unable to achieve the RBI's loan and deposit growth targets with the economy remaining moribund. India’s economic growth slumped to its lowest level in nine years to 5.3% from January to March.

RBI projects credit growth at 17% in 2012/13 and deposit growth at 16%.

Banks' incremental credit-deposit ratio, which reflects fresh demand for loans in proportion to deposits, stood at just 48% compared to 51% in the same period last year and 84% in 2011/12.

Banks' outstanding credit came to US$856 billion as of June 29, while deposits stood at US$1 trillion.

In the absence of demand for credit, banks continued to invest their money in central and state government bonds. Investment in government bonds and other approved securities rose 6.7 percent to US$337 billion in the three months to June.