Credit growth drops to 14.1 per cent

Credit growth drops to 14.1 per cent
Business Standard, September 10, 2009, Section II, Page 2

BS Reporter / Mumbai

Loan flow remains low, banks hike g-sec investment.

The credit demand in the country has remained unaffected by stable interest rates and the economy showing signs of revival.

According to the latest data released by the Reserve Bank of India (RBI) this evening, bank credit flow during the fortnight ended August 28, 2009, was estimated at Rs 5,612 crore. In the previous fortnight, bank credit had shrunk by Rs 5,000 crore.

Outstanding bank credit was estimated at Rs 28,07,582 crore as against Rs 24,60,753 crore during the corresponding period last year.

The moderate demand during the last few months is the result of companies putting their expansion plans on hold on account of low demand from households, which are waiting to see definite revival signs before committing expenditure. As a result, credit growth has slowed to 14.09 per cent for the year up to August 28, 2009, as against 25.8 per cent for the year up to August 2008. RBI has projected credit growth of 20 per cent for the current financial year.

Bankers said the situation would improve as there were signs of higher demand. “Demand for home loans has gone up as property prices have stabilised.

There is no further expectation of interest rates coming down. We see demand from both corporate and retail but disbursement is just a matter of time. Retail is contributing to the growth and by the year-end we will substantial participation by them,” said a senior executive of a public sector bank.

“Banks are focusing on retail followed by infrastructure projects and normal working capital requirement. We have seen a good number of projects getting sanctioned. Also, we have demand for crop loans after the revival of monsoon,” said Bank of India Executive Director M Narendra.

Bankers pointed out that segments such as automobiles had recovered, which would further spur demand. But private and foreign players were still reluctant to lend, though they were slowly returning to the market, they said.

An executive at a foreign bank said that with a large part of the bank funds cornered by the government borrowing programme, it was only natural that bank credit flow would be affected.

Despite of rates on deposits falling, banks mobilised Rs 21,616 crore during the fortnight. Bank deposit rates are hovering at 6.5-7.5 per cent at the moment. Also, demand deposits went up by Rs 3,719 crore while deposits with tenures of more than a year saw an inflow of Rs 17,896 crore.

“Although the deposit rates have come down from their peak last year, they are still attractive for retail investors,” said the executive. Deposits went up by 20.51 per cent on a year-on-year basis.

With low credit demand, bank investment in government securities and other approved securities went up by Rs 23,266 crore during the fortnight ended August 28, 2009.