Finance Ministry wants banks to focus on minorities while lending to priority sector

Finance ministry has asked public sector banks to emphasize on minorities while disbursing credit to priority sector. The ministry has asked the banks to step up advancing credit in districts with heavy density of such communities.

Public sector banks like Corporation Bank, Union Bank of India, Bank of Maharashtra, State Bank of Bikaner and Jaipur and IDBI Bank have not met the stipulated target of lending 10% of the entire priority lending to minorities.

As per the government guidelines, the banks must disburse atleast 40% of their total advances to sectors like micro small and medium enterprises (MSME), agriculture sector, education loan, etc. which are together classified as priority sector.

As per Prime Minister's minority welfare plan of 2006, the banks should emphasize on credit support to weaker section of minority community for self employment. A senior banker added that lack of awareness among the weaker segment of the minorities has made it difficult for the banks to achieve their targets.

Investors prefer deposits over other investment options

High inflation, sluggish economic growth and reduced faith of industry in government policy has resulted in more investors relying on bank deposits than other investment avenues like stock markets, debentures, etc.

According to RBI's Annual Report 2011-12, the Deposits with banks grew by 13% from Rs. 451,680 crore  to Rs. 512,030 crore in FY12. Compared with stock markets which saw Rs. 6,510 crore of outflow in shares and debentures, against Rs. 1,730 crore of investment in the preceeding year.

Uncertain global and domestic economies result in fluctuation in valuation of shares, due to which the investors look for secure options of investment and banks deposits, mainly fixed deposits are the preferred option.

Savings banks account though offer a little return but form a large deposit base along with current account to make what banks call current account savings account or CASA

Bank deposits also ate away the share of savings instruments like National Savings Certificates (NSC) which also reduced by Rs. 22,030 crore against Rs. 900 crore of inflow in the previous year.

CASA loosing its sheen but smaller bank still seek CASA

Current Account Savings Account (CASA) were at one point of time apple of the eyes of every banker, where the banks amassed a large corpus of funds from the public at very low cost. But slowly the CASA component of banks' total deposits have been depleting.

Current Account which have no interest given on them are generally maintained by businesses, with added benefit of overdraft facility; Savings account on the other hand are low interest offering deposits maintained primarily by salaried class to keep their earnings.

Of late, HDFC Bank, one of the leaders in CASA strategy saw its CASA percentage reduce from 49% to 46%. Analysts predict that the CASA is bound to go down, since developing economies tend to save less. But smaller banks like Bank of Maharashtra and Vijaya Bank are seeing this as an opportunity and have launched campaigns to acquire more CASA deposits.