RBI asks banks to beef up deposits

Worried over bank's reluctance to increase deposit rates despite its signal, the Reserve Bank of India(RBI) has prodded banks to beef up efforts to mobilise deposits. At a recent meeting with the country's top bankers, RBI officials , led by Dy.Governor Subir Gokarn, expressed concern over the tardy growth of term deposits. Deposit growth has been just 14.44% for the year to August 27, far below RBI's projection of 18%. This is mainly due to unattractive rates. With inflation close to double digits, the real returns are negative. Though RBI raised repo and reverse repo rates by 25 and 50 basis points (bps), respectively, on September 16, most banks are yet to take its cue. A day after, the country's largest lender, SBI, said it was not likely to raise rates before 3-6 months. According to bankers, the regulator wants that availability of money should not be a constraint to corporate India's growth. Banks,on the other hand, do not see an immediate need to raise rates as demand for loans has not picked up significantly. Banks credit growth till now has been in line with RBI's projection of 20% for 2010-11.Rather than raising term deposit rates, which are more stable, banks are rushing to raise short-term funds. (BS 23092010)