According to RBI data, the percentage of bank deposits in overall savings/investments made by the household sector in financial assets declined from 54 per cent to 41 per cent between financial years 2013-14 and 2015-16.
RBI says that growth in time deposits decreased because of lowering of deposits rates. Large issuances of long-term tax-free bonds by various public sector units also contributed to the deceleration in deposits. But bank officers say that they are not affected by fall in deposit growth because in their opinion demand for fresh credit has also slowed down. They say that when demand for credit will increase , they will think of increasing deposit rates too.
I think it will prove very much harmful for the economy if savers continue to diversify their savings to other avenues discarding banks in quest of higher yield. Further if deposit growth in banks continue to shrink, they will not be able to lend more and their profitability will also get reduced. Collection of deposits and sanction of loan is the prime function of bankers and they cannot be silent spectator of downtrend in deposits and credits. They have to find out real reasons behind poor growth and try to overcome the hurdles and search solution for the problems instead of waiting till turnaround in the economy or increase in demand for credit . Rather if they increase process of sanction of loan , economy will grow , it is not vice versa.
There is continuous erosion in growth of deposits due to significant fall in interest rate and consequent fall in growth in advances in public sector banks for last five to seven years compared to that in Private banks . Still some bankers suggest for further lowering of interest rate . They are not ready to accept that so deposit growth will further fall and they will not be required to lend more. They are not concerned about fall in their business and in their profitability. They are not trying to understand that lowering of interest rate on deposits forces savers to keep their surplus fund elsewhere . Not only this , lowering of interest cause much trouble to pensioners and old people whose livelihood depend on interest income. Banks officers and Government of India has to think over it why there is continuous fall in savings in banks. If banks decide to wait till economy improve, then they appear to have decided to sit idle and appear not bothered of poor health of their bank. It is simply a step towards non-performance. Banks are supposed to mobilize deposit to enhance their lending capacity so that they may contribute in growth of economy.
I will call those bank officers as mad or fool who think that there is no scope for credit growth. Because under the same economic situation , growth of deposits and credit is at least double in private banks compared to that of PSU banks.
If bank officers start extending credit without any pre-condition of gifts , without asking for irrelevant documents from genuine loan seekers and without any pressure of higher bosses for achievement of targets, I think credit off take will increase and quality of lending will also improve. But as long as lending will be done under pressure or in greed of bribe, one cannot dream of quality lending and cannot dream of reduction in creation of new Non-Performing Assets.
Growth in credit in Private banks ranges from 20 to 25 percent where that in PSU bank is only 5 to 10 percent . This is because bank officers in PSU banks are either not properly educated for credit lending or not truly honest and devoted for increase in lending or they are dishonest and extend credit only after taking bribe or under pressure from their bosses.
It is therefore not correct to blame interest rate for poor growth in credit or to blame economic condition or to blame global recession. Banks are victim of dirty officers posted as Branch Head or Region Head or Bank Head or they are victim of dirty politics played by politicians ruling in the country in different states.
Honest Bank officers are also afraid of account going bad and facing penal action. For this purpose government has to make legal and administrative system active , effective and free of corruption. There are bad individuals and bad companies which cheat bank officers by furnishing fake documents or by offering gifts or by creating fear of physical assault to bank officers if they deny sanction of loan to them.
Legal officials and officers working in administrative and police departments who are supposed to help bank officers in recovery of dues from bad borrowers do not support bankers in recovery of dues from defaulting individuals and defaulting companies, rather they act as paid agent of bad borrowers. This promotes feeling of helplessness, fear and isolation in the mind of honest bank officials and they decide to avoid taking decision on loan proposals instead of facing penal action if the account turn non performing due to some reason or the other.
I therefore feel that even if interest rate on loans is increased, it is not going to create hurdles and impediments in growth of credit . Interest rate is not that much a big role player as it is projected to be by clever politicians and clever bankers to shield their inefficiency and evil desire of some officials to earn illegal money. It is important to point out here that before 1991 , rate of interest used to be at least double to what it is today, still credit growth and GDP growth used to be better than what they are today.
Need of the hour is to change culture of lending, change work culture in banks , change attitude of bank officers and politicians and also change the work culture in bureaucracy and judiciary instead of putting entire blame on interest rate all the time either for poor credit off take or for increase in volume of NPA accounts in PSU banks.
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