Credit flow shrugs off RBI measures, grows 26%

Despite a strong dose of monetary action by the Reserve Bank of India (RBI) to cut demand, the credit flow has shown a 25.8 per cent annual growth till August 1, 2008, compared with 23.3 per cent growth clocked a year ago.

During the current financial year till August, the growth in credit flow is 2.8 per cent compared with a 0.1 per cent drop in the same period last year, according to the RBI weekly statistical supplement.

The outstanding bank credit at the end of August 1 was Rs 24,27,592 crore. Banks have extended credit worth Rs 65,678 crore since April 2008. Advances declined by Rs 1,787 crore in April-July 2007. The central bank has projected a 20 per cent growth for adjusted non-food credit in 2008-09.

Since April, RBI has hiked the repo rate – the rate at which banks borrow from RBI — by 125 basis point to 9 per cent and the cash reserve ratio (CRR) – the amount of money out of the deposits that banks have to keep with RBI – by 150 points to 9.5 per cent.

Pointing to the limited impact of RBI’s action on demand, a senior State Bank of India executive said, the demand from cash-strapped oil marketing companies for working capital remains high.” Infrastructure and small businesses also continue to seek credit from banks and financial institutions.

Unlike credit, the deposit flow has shown signs of moderation. It saw 20.9 per cent annual growth till early August 2008 against a 24.4 per cent rise in the same period last year.

Forex reserves down by $5.4 billion
India’s foreign exchange (forex) reserves declined sharply by $5.46 billion to $300.01 billion as on August 8, 2008, partly due to a rise in demand for dollars and a change in currency values.

In rupee terms, the total reserves went down by Rs 28,085 crore to Rs 12,66,326 crore.

While foreign currency assets declined by $5.45 billion, the value of the reserve position with the International Monetary Fund (IMF) declined by $8 million to $504 million, according to the data released by the Reserve Bank of India (RBI) in its Weekly Statistical Supplement.

The value of gold in RBI’s reserves remained unchanged at $9.73 billion. For the week ended August 1, 2008, reserves had declined by $1.12 billion. Since the end of March 2008, they have declined by about $9.71 billion.