Watch out for retail credit growth

Retail loans fared the worst, with credit growth of only 0.7 per cent as of November 20, 2009, against 13.2 per cent in the previous year.

With loans to the retail sector showing a very modest growth in 2009-10, the Economic Survey said it is necessary to monitor these credit growth parameters while sequencing measures for a withdrawal of the stimulus.

While growth in credit to agriculture remained more or less the same as the preceding year, it noted, this had decelerated for the other broad sectors – industry, personal loans and services.

Retail loans fared the worst, with credit growth of only 0.7 per cent as of November 20, 2009, as against 13.2 per cent in the previous year. In fact, certain sub-categories such as advances against fixed deposits, credit card outstandings and consumer durables have shown a fall.

“It would be necessary to monitor these indicators for an improvement in credit growth, while sequencing measures to roll back the stimulus,” the Survey said.

While demand for non-food credit remained muted, there has been a significant increase in availability of non-banking resources, which helped industry meet its credit needs.

The increase in non-bank resources between April 2009 and January 2010 has been to the tune of Rs 50,000 crore. Thus, adjusted non-food credit, that was nearly 48 per cent of the total flow of funds to the commercial sector between April 2008 and January 2009, accounted for only 39 per cent of the flow in 2009-10 (April-January).

On the other hand, the contribution of non-bank sources increased from 52 per cent in 2008-09 to nearly 61 per cent in 2009-10 for the same period. “This increase in flow of funds from non-banking sources was both from domestic and foreign sources, and is indicative of structural rigidities that affect the monetary transmission mechanism, particularly in respect of the credit markets,” the Survey said.

It also pointed out that the growth in aggregate deposits remained higher than that in bank credit during 2009-10. The lower expansion in credit, relative to the significant expansion in deposits during

2009-10, resulted in a decline in the credit-deposit ratio from 72.4 in end-March 2009 to 70.8 in mid-January 2010, though with some signs of revival since December.