Bank credit shrinks by Rs 25,000 cr

Reflecting moderation in economic growth, bank credit contracted by about Rs 25,000 crore in January 2009 compared with the outstanding credit of Rs 11,85,530 crore around December 2008.

Bankers said the credit growth had been flat in the first month of 2009 compared with the same period of 2008. While public sector banks have reported an increase in demand for credit, the slowdown is more pronounced in case of foreign and private sector banks.

Foreign banks operating in India are facing resource crunch. Many private banks have preferred to consolidate their balance sheets than giving fresh loans. 

THE BANKING BUSINESS TREND (Figures in Rs/cr)
Month	Credit	Investment
January end 2009	27,18,077	12,04,045
December 2008	27,42,947	11,85,530
November 2008	27,22,947	11,41,363
October 2008	26,95,321	10,86,959
Source: RBI

Due to the ongoing economic slowdown, companies have kept their expansion plans on hold. Banks have already gone slow on retail credit due to rising risk of defaults. Special home loan rates announced by public sector banks have also got a lukewarm response.

The Reserve Bank of India (RBI), in its third quarter review of the monetary policy for 2008-09, had revised the non-food credit growth target from 20 per cent to 24 per cent.

Banks saddled with excess funds have channelised resources to government bonds and corporate paper, including the bonds issued by banks to bolster their capital base. The investment in securities rose by Rs 18,515 crore in a month. The outstanding investment portfolio of banks on January 30, 2009, was Rs 12,04,04,5 crore.

The investment to deposit ratio rose to over 31 per cent by mid-January 2009. Improved liquidity conditions and extra government borrowing to fund the stimulus package has reversed the drop in banks’ holdings of statutory liquidity ratio (SLR) securities. The SLR holdings increased to 28.9 per cent by early January 2009 from 25.8 per cent in October 2008, according to RBI data.