Growth in bank deposits and credit slowed in Q4, 2009-10

Mumbai: The pace of growth in bank deposits and credit showed a substantial decline in the last quarter of 2009-10, as compared to the same quarter of the previous year, reports PTI.

According to the Reserve Bank of India (RBI) data, although deposits of scheduled commercial banks (SCBs) in the country went up by 16.9% to Rs46,01,926 crore during Q4, 2009-10, they expanded at a slower pace than in the year-ago period.

In Q4 2008-09, deposits had increased by 21.9% to reach at Rs39,37,336 crore.

During the last fiscal, the Indian economy had just about started recovering from the impact of the global financial meltdown.

Credit advances, on the other hand, increased 17.1% for the quarter ended 31 March 2010 to Rs33,45,619 crore, from the year-ago period, said RBI's latest 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks'.

The growth rate was down from the 19.3% registered during Q4 of 2008-09, when total credit had stood at Rs28,57,525 crore.

The top hundred centres across India, arranged according to the size of bank credit, accounted for 78% of total bank credit.

"Aggregate deposits of top hundred centres increased by 17.2% in March 2010 over March 2009 compared to a growth of 21% recorded a year ago. Growth rate of gross bank credit of top hundred centres at 16.3% in March 2010 was substantially lower than 20.5% growth recorded in March 2009," the RBI said.

The top hundred centres accounted for Rs31,93,906 crore of total deposits and Rs26,10,275 of total credit as on 31 March 2010.

In March 2009, the comparative figures for deposits and credit for the top hundred centres were Rs27,24,996 crore and Rs22,43,506 crore, respectively.

Among the major centres, Greater Mumbai came at the top with deposits of Rs9,82,498 crore (growth of 22.6%) and banks credit of Rs8,52,311 crore (up 7.3%) in the last quarter of 2009-10.

In second place was Delhi, with total deposits of Rs5,60,675 crore (increase of 9.7%) and bank credit of Rs 4,22,514 (up 20.3%).

Bangalore came third as regards deposits of SCBs during the quarter under review with a growth of 14.5% at Rs1,86,432 crore.

On the credit side, Chennai was at the third slot with a total bank credit of SCBs at Rs1,75,834 crore as on 31 March 2010, up 20.4% from the same period previous year.

Nationalised banks accounted for 51.9% share of the aggregate deposits at Rs23,88,904 crore, while State Bank of India (SBI) and its associates accounted for 22.5% or Rs10,35,859 crore.

As regards gross bank credit, nationalised banks had 52% or Rs17,39,301 crore in the total bank credit. SBI and its associates had a share of 23.1% or Rs7,73,817 crore.


IRDA stops insurers from providing credit default insurance

New Delhi: The Insurance Regulatory and Development Authority (IRDA) has asked the general insurers to stop giving credit default insurance, a cover which is provided to banks against payment default by borrowers, reports PTI.

IRDA has ordered "all general insurers to stop selling these policies (credit default insurance) till such time the authority comes with detailed guideline in this regard."

The sector regulator has sought details of the total exposure of the insurer under the credit insurance policies issued by them to banks offering credit facilities to debtors.

The IRDA has found that the credit insurance cover being marketed by general insurers to banks appears to be in the nature of credit default insurance.

A credit insurance cover provides for a cover against losses resulting from the inability to repay a loan. A credit insurance policy usually provides a security cover for a specific reason for which a borrower defaults.

"The authority, after examining the credit default insurance contracts has come to the conclusion that the insurers are underwriting risks which do not have proper regulatory framework or sanction," IRDA said in a circular to all general insurance companies.

Therefore, such covers necessarily need to have a different regulatory treatment, it added.


Microfin entities may come under tighter regulations: Report

New Delhi: Microfinance institutions (MFIs) in the country may be subject to stricter regulations considering the "socio-political sensitivity" involved in rural lending activities, reports PTI quoting a brokerage house report.

At a time when the government is looking at ways to increase rural lending, MFIs have attracted criticism from various quarters for charging high interest rates on loans.

In a report on MFIs, domestic brokerage Indiabulls Securities said the "the business of MFIs is likely to come under regulatory or judicial intervention considering the socio-political sensitivity to rural lending."
This trend has already been seen in Andhra Pradesh and Kerala where governments have mandated non-banking finance companies (NBFCs) and MFIs to register under local money-lending laws, which means that the government has the right to cap or monitor the interest rates charged to borrowers.
The report, done by two analysts, Saikiran Pulavarthi and Deepak Agrawal, comes at a time when the government is of the view that MFIs should not lend funds at usurious rates and the finance ministry has asked public sector banks to ensure that these institutions do not charge a loan rate of above 24%.
Compared to urban lending, MFI lending rates in the rural areas are much higher.
If MFI lending grows on a mass scale, one would have to wait to see how the local leadership views the popularity of such lendings and the lenders, the report said.
Analysts are of view that considerable socio-political sensitivity can be associated with lending at high interest rates to the poor.
"The entry of an 'apolitical' Messiah providing cheap loans will have ramifications (threat of erosion of vote banks, dilution of leadership of the panchayats, zamindars, etc). In such a scenario, MFIs will face instant ostracisation due to obvious reasons," Mr Pulavarthi said.
"Also, farm loan waivers have always been a vote-bank tool. We have seen such instances occurring in Karnataka last year. Any similar moves of this kind could hamper the business of MFIs," the report said.
The number of MFIs has increased manifold in the last few years and therefore analysts believe the risk of multiple MFI lending to same individual is pretty high going forward.
Since microfinanciers take loans from banks and lend it to customers at rates as high as 36%, the government is now insisting that public sector lenders should ask MFIs to cap their lending rates in the range of 20%-24% as a pre-condition to access bank finance.

On its comment over SKS Microfinance, the only listed MFI in the country, Indiabulls analysts said they believe that the execution risk on a pan-India basis is quite high.
SKS' loan book is primarily concentrated in five states, which contribute 71% of total loans.
"The new states where SKS is now expanding offer great opportunity; however that comes with high execution risk, especially because consumer behaviour, social and religious dynamics are different from region to region, and competition is already strong in states where SKS will enter," they added.


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