Bank credit flow goes up, courtesy year-end demand

With the financial year drawing to a close, bank credit flow has seen a revival of sorts with advances during the fortnight-ended February 27 rising by Rs 21,307 crore.

This is the highest growth since the fortnight-ended October 10, when demand for loans from the banking system shot up after the global credit crisis intensified. Following the collapse of Lehman in mid-September, Indian companies could not access the capital markets to raise resources, and overseas credit markets had also frozen, which resulted in demand shifting to domestic banks.

During the fortnight-ended February 13, credit growth was estimated at Rs 10,445 crore. During February, advances from banks rose by around Rs 31,750 crore, as against a fall of Rs 22,700 crore in January 2009.

“There is some revival in demand in sectors as automobiles, partly due to a reduction in interest rates,” said an executive with a large private bank.

Bankers said there was growth in credit demand across sectors. The most prominent being short-term loans to companies, while retail segment has not shown a significant rise. Banks are now working overtime to meet business targets for 2008-09, added a banker.

Investment in securities that are eligible for the calculation of the statutory liquidity ratio (SLR), however, rose partly due to higher supply of government securities that provide risk-free returns. During the fortnight-ended February 27, investment in SLR instruments rose to 15,128 crore, as against Rs 6,571 crore in the previous 15-day period.

The outstanding credit at the end of February was estimated at Rs 26,68,090 crore, according to latest data released by the Reserve Bank of India today.

While credit off-take has picked in February, annual growth patterns throw up a different picture.

The year-on-year growth in advances till February 27, 2008 was down to 18.3 per cent from 22.1 per cent a year ago. This is lower than RBI’s revised growth projection of 24 per cent for the current year.

In absolute terms, banks have disbursed loans to the tune of Rs 4,13,330 crore during the 12 months ended February 2008, a shade higher than the Rs 4,07,751 crore sanctioned in the year-ago period.

During the first 11 months of the current financial year, the loan growth is much lower at 13 per cent, as against 16.8 per cent in the corresponding period of 2007-08.

The year-on-year growth in money supply fell to 19.6 per cent at the end of February 27, 2009, as against 19.9 per cent during the previous fortnight. RBI had revised its money supply growth projection to 19 per cent from 17 per cent earlier.

A part of the reason for the slower growth was the continued reluctance to lend by foreign and private banks.