Bank credit shrinks as firms opt for CPs

The decline is Rs 21,186 crore from the fortnight ended July 3

Belying pronouncements of a turnaround, bank credit shrunk by Rs 21,186 crore during the fortnight ended July 17 as companies accessed funds through short-term instruments at lower cost.

According to the latest data released by the Reserve Bank of India (RBI) today, outstanding credit by scheduled commercial banks grew 15.38 per cent to Rs 27,77,561 crore as on July 17, 2009, as against Rs 24,07,307 crore a year ago.
 

CREDIT CRUNCH
Fortnight- ended	Credit flow	Y-o-Y growth (%)*	Deposit mobilised	Y-o-Y growth (%)*
10-Apr	1,429	18.8	70,726	22.1
24-Apr	-25,266	18.1	21,956	22.5
8-May	5,882	17.2	29,260	22.6
22-May	16,306	15.9	15,730	22.6
5-Jun	21,460	15.7	3,656	22.0
19-Jun	13,006	15.8	-5,502	22.0
3-Jul	28,532	16.3	62,559	21.9
17-Jul	-21,185	15.3	-18,656	21.8
Figures in Rs crore ;  *At the end of fortnight                                      Source: RBI

Bank credit had grown by 16.3 per cent on a year-on-year basis to Rs 27,98,747 crore at the end of July 3, 2009. During the previous fortnight, there was an increase of Rs 28,532 crore, which was seen as a turnaround in the falling growth curve, which even RBI pointed to in its first-quarter monetary policy review.

Bankers, however, said that the upswing in the previous fortnight was on account of demand for short-term credit as the quarter was drawing to a close and not due to any increase in investment-related demand.

“Besides, borrowers have shifted their focus to commercial papers (CPs). There is not much demand for long-term credit,” said a senior executive of a public sector bank.

Banks’ prime lending rates (PLRs) are hovering around 11-14 per cent, whereas the rate of interest on three-month CPs is around 4.60 per cent, according to Reuters data.

According to the RBI data, the CP outstanding went up from Rs 60,720 crore in May to Rs 67,239 crore at the end of June.

Bank executives said that short-term loans, which were sanctioned earlier, were not coming up with renewals. Besides, many companies that had sanctioned lines were not drawing them, they added.

“We are not seeing any major pick-up in demand for credit. Neither sanctions nor disbursals have showed any major signs of improvement,” said Partha Mukherjee, president of corporate banking, Axis Bank. He added that a credit recovery would happen soon but it could take as long as six months.

Food credit extended by commercial banks stood at Rs 48,148.31 crore as on July 17, 2009, a 4.3 per cent decrease from Rs 50,359.67 recorded on July 18, 2008.

Over the fortnight up to July 17, 2009, deposits fell by Rs 18,656 crore to Rs 40,10,051 crore. The dip was mainly on account of demand deposits, which fell by Rs 16,275 crore to Rs 4,95,298 crore. Over the same fortnight, time deposits fell marginally by Rs 2,379 crore to Rs 35,14,752 crore.