The growth in overall bank credit is showing definite signs of slowdown and even the deposit growth is tapering off suggesting a larger fraction of household savings has been going into physical assets like gold. The growth in gross bank credit in the month of December 2012 has slowed to 15.1% year-on-year from around 17% in December 2011.
The growth in non-food credit was much slower at 14.9% in December last year compared with a year ago, a clear 2.6 percentage point slower than what was recorded in November last year. So, if credit growth does not pick up, it will not augur well for a quick rebound in economic growth of the country. In fact, in the quarter to June 2011 the economy grew at 8%, helped up a robust bank credit growth of 20.3% year-on-year and deposit growth of 18.3% year-on-year. In the quarter to March 2012, when the economic growth slowed to 5.3%, gross bank credit growth had moderated to 18.3% and deposit growth slipped to 13.8%. Similarly, in quarter to September 2012, while the economy grew at 5.3%, gross bank credit growth slowed at 15.8% and the deposit growth did not budge ahead.
While the slowdown in bank credit would mean that banks are flush with liquidity, but that may not be the case as the deposit growth has decelerated sharply and was at 11% year-on-year in December last year. So, any reduction in bank deposit rates may further discourage savers to park money in bank deposits, reduce the financial savings rate and further slow down investment and growth.