Credit growth drops to 15%, signals rate cut by banks
The Financial Express, June 5, 2009, Section II
fe Bureau, Mumbai
Indicating the continuation of slowdown in the economy, bank loans after remaining stagnant in the recent past have dropped Rs 16,306 crore for the two weeks ended May 22, 2009, thereby taking outstanding advances to Rs 27,35,750 crore.
According to the data released by the Reserve Bank of India (RBI) on Thursday, bank credit has further dropped to 15.86%, or Rs 3, 74,544 crore on year-on-year basis through 22 May. At the same time, deposits have stayed almost flat at 22.57%, or Rs 7, 30,565 crore, in the same period to Rs 39, 67,995 crore. The credit growth is way below the central bank’s projection of 18-20% for 2009-10.
During the previous fortnight, which ended May 8, 2009, bank loans showed a rise of Rs 5,882 crore taking outstanding advances to Rs 27,52,056 crore.
Credit dropped to 17.20%, or Rs 4,03,956 crore on year-on-year basis through 8 May, while deposits stayed almost flat at 22.62%, or Rs 7,28,999 crore, in the same period to Rs 39,52,264 crore.
While credit growth during the fortnight has shown a massive drop by almost 200 basis points, analysts still remain optimistic on the credit activity and expect the kick off to happen during the second half of 2009.
According to economists, Sailesh Jha and Rahul Bajoria from Barclays Capital Research, credit growth will accelerate in the next two to three quarters and will stimulate investment spending.
“We are projecting non-food credit growth of around 18% on year-on-year basis in financial year 2009-10 as against 17.5% during financial year 2008-09. Domestic credit growth data releases from early May have already shown signs of a recovery, while anecdotal evidence suggests that banks’ willingness to lend to large corporates is increasing and demand for credit is also high. Our econometric model results suggest that the key drivers of credit growth are industrial production, stock market performance, time deposits, and lagged credit growth. All of these variables are likely to increase during the second half of 2009,” they said in a report.
However, the report has said that the Reserve Bank of India may start raising interest rates in the fourth quarter as excess money in the banking system begins to stoke inflation.
The Reserve Bank of India may increase its reverse repurchase rate by a half-point to 3.75% as “concerns on excess liquidity feeding into inflation start rising,” said Jha. The central bank may also raise its repurchase rate and cash reserve ratio in the first quarter of 2010, he said.
Last week, CARE ratings projected a deposit growth of 18-20% in both 2009-10 and 2010-11.
“The growth in credit would be fuelled by growth in lending to the infrastructure sector where the share of infrastructure in total bank credit will increase from 9% in 2007-08 to 12% in 2010-11, while retail credit will show a moderate growth” said DR Dogra, deputy managing director with CARE Ratings.
The Financial Express, June 5, 2009, Section II
fe Bureau, Mumbai
Indicating the continuation of slowdown in the economy, bank loans after remaining stagnant in the recent past have dropped Rs 16,306 crore for the two weeks ended May 22, 2009, thereby taking outstanding advances to Rs 27,35,750 crore.
According to the data released by the Reserve Bank of India (RBI) on Thursday, bank credit has further dropped to 15.86%, or Rs 3, 74,544 crore on year-on-year basis through 22 May. At the same time, deposits have stayed almost flat at 22.57%, or Rs 7, 30,565 crore, in the same period to Rs 39, 67,995 crore. The credit growth is way below the central bank’s projection of 18-20% for 2009-10.
During the previous fortnight, which ended May 8, 2009, bank loans showed a rise of Rs 5,882 crore taking outstanding advances to Rs 27,52,056 crore.
Credit dropped to 17.20%, or Rs 4,03,956 crore on year-on-year basis through 8 May, while deposits stayed almost flat at 22.62%, or Rs 7,28,999 crore, in the same period to Rs 39,52,264 crore.
While credit growth during the fortnight has shown a massive drop by almost 200 basis points, analysts still remain optimistic on the credit activity and expect the kick off to happen during the second half of 2009.
According to economists, Sailesh Jha and Rahul Bajoria from Barclays Capital Research, credit growth will accelerate in the next two to three quarters and will stimulate investment spending.
“We are projecting non-food credit growth of around 18% on year-on-year basis in financial year 2009-10 as against 17.5% during financial year 2008-09. Domestic credit growth data releases from early May have already shown signs of a recovery, while anecdotal evidence suggests that banks’ willingness to lend to large corporates is increasing and demand for credit is also high. Our econometric model results suggest that the key drivers of credit growth are industrial production, stock market performance, time deposits, and lagged credit growth. All of these variables are likely to increase during the second half of 2009,” they said in a report.
However, the report has said that the Reserve Bank of India may start raising interest rates in the fourth quarter as excess money in the banking system begins to stoke inflation.
The Reserve Bank of India may increase its reverse repurchase rate by a half-point to 3.75% as “concerns on excess liquidity feeding into inflation start rising,” said Jha. The central bank may also raise its repurchase rate and cash reserve ratio in the first quarter of 2010, he said.
Last week, CARE ratings projected a deposit growth of 18-20% in both 2009-10 and 2010-11.
“The growth in credit would be fuelled by growth in lending to the infrastructure sector where the share of infrastructure in total bank credit will increase from 9% in 2007-08 to 12% in 2010-11, while retail credit will show a moderate growth” said DR Dogra, deputy managing director with CARE Ratings.
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