Bank credit growth down on risk aversion

The Reserve Bank of India (RBI) on Monday said the deceleration in growth in advances was due to the risk-aversion strategy adopted by banks, along with other factors like the slowdown in economic activity and the impact of monetary tightening actions.

“During the third quarter of 2011-12, credit growth slowed, partly reflecting the slowing economic activity and the portfolio adjustment to the non-performing assets cycle,” RBI said in the macroeconomic monetary developments report. So far this financial year, bank advances grew 10.7 per cent, compared with 16 per cent in the corresponding period last year.

The annual growth in non-food credit fell to 15.9 per cent as on December 30, from 24.5 per cent a year ago. In the second quarter review of monetary and credit policy, RBI had projected credit growth of 18 per cent by March 2012.

The decline in credit growth for public sector banks was sharp, reflecting risk aversion. This led to a portfolio switch to safer investments of government securities, RBI said. Public sector banks recorded credit growth of 15 per cent as on December 30, compared with 24 per cent growth a year ago. Credit growth of private sector banks declined from 28.2 per cent to 18.5 per cent. Foreign banks, however, bucked the trend with a moderate increase of 20.6 per cent in advances at the end of December, compared with 19.8 per cent growth in the year-ago period.

While credit flow from banks declined, the share of credit flow from non-bank sources increased to 53.9 per cent in the first nine months of 2011-12, compared with 43 per cent in the year-ago period. RBI said though the concentration of industrial credit rose over a period, the vulnerability of banks to particular sector specific shocks was limited.

The regulator said the growth rate of non-performing assets (NPAs) remained high, even during the periods of robust economic growth in past two years. “While the high NPA levels partly reflect the implementation of a better reporting system, the slippage remains a cause of concern,” RBI said.

Deposit growth was strong compared to last year, due to successive increases in deposit rates. RBI said there was a shift of preference from currency deposits to term deposits.