RBI asks banks to link credit expansion with deposit growth

Mumbai, Jan 25 (PTI) The Reserve Bank of India (RBI)today asked banks to ensure that there was no mismatch in theexpansion of credit and collection of deposits.

"Credit expansion in the recent past has been rathersharp, far out-pacing the expansion in deposits. Rapid creditgrowth without commensurate increase in deposits is notsustainable", RBI Governor D Subbarao said today after theThird Quarter Review of the Monetary Policy.

Expressing serious concern over banks pushing up theirlending even when their deposit collection was faltering, hesaid RBI would monitor the credit growth and "if necessary,engage with banks which show an abnormal incremental credit-deposit ratio".

RBI had to initiate measures recently to increaseliquidity in the system as the growth in bank deposits wasabout 16 per cent against credit growth of about 24 per cent.

The review statement said that during the quarter, up tomid-December, banks mobilised Rs 88,514 crore of deposits andlent out Rs 2,14,638 crore. However, with active depositmobilisation in the second fortnight of December, the mismatchhas narrowed, it said.

Subbarao said that while RBI would extend liquiditysupport to meet the productive credit requirements, it isimportant that there is moderation in the credit growth.

There is limit to what the RBI can do to ease liquidity.

Credit and deposit growth of banks has to be aligned, he said.

Heads of commercial banks at the policy meeting todayindicated their willingness to align credit growth with thatof deposit growth, the Governor said.

However, some banks pointed out that financing theinfrastructure sector was a major source of asset-liabilitymismatch and there is a need to incentivise raising oflong-term resources by banks through appropriate fiscalmeasures, he added. .