Bank credit shrinks in first half of July

Reflecting the moderation in economic activity and the demand for loans, bank credit declined by Rs 71,771 crore to Rs 4,014,555 crore in the first fortnight of July.

Bankers said the decline partly reflected the unwinding of short-term credit disbursed in the first quarter to meet targets. The demand for loans from companies also remains low due to the uncertain economic climate.

Bank credit grew by just 1.92 per cent (Rs 75,896 crore) till July 15, according to Reserve Bank of India data.

The Reserve Bank of India (RBI) yesterday raised the repo rate by 50 basis points to fight inflation, and this would act as a disincentive for any capital expenditure, said a senior IDBI Bank executive. RBI also cut the credit growth estimate for 2011-12 by one percentage point to 18 per cent. After RBI’s announcement, State Bank of India Chairman Pratip Chaudhuri had said 18 per cent credit growth was unlikely, since many customers said they didn’t want rupee-denominated credit. Companies are now asking for guarantees; they say they would get three-year loans for equipment from other sources.

Many banks reported shrinking of the loan books during the April-June period. Union Bank of India and Axis Bank recorded declines of 5.6 per cent and 7.4 per cent, respectively, in their loan portfolio as on June 30, compared to the figures in end-March. YES Bank saw a 3.6 per cent decline in its loan book in June.

Union Bank of India cut its loans growth target by three per cent to 19 per cent for the financial year ending March 2012. The demand for credit is set to decline due to the uncertain economic climate, according to chairman and managing director, M V Nair.

Bank deposits declined by Rs 71,438 crore to Rs 5417,243 crore in the fortnight ended July 15, RBI said. K Ramakrishnan, chief executive, Indian Bank’s Association said bank customers withdrew a part of the deposits in early July to invest in liquid mutual funds, expecting better returns.