Credit growth back in double digits

Growth rebounds, but far below the RBI target of 18%.

After a gap of six weeks, growth in bank credit is back in double digits.

In the fortnight ended November 23, bank credit grew 10.08 per cent, marginally better than 9.78 per cent at the end of the previous fortnight. A big reason for this faster growth is the base effect as outstanding bank credit went up by Rs 7,056.63 crore to Rs 28,98,769 crore.

In the corresponding fortnight last year, total credit outstanding of banks had shrunk by Rs 2,192 crore compared to the previous fortnight.
 

PICK-UP SIGN

Fortnight-
 endedCredit
flow
 (Rs cr)Y-o-Y
growth
(%)*Deposit
mobilised
(Rs cr)Y-o-Y
growth
(%)* 10-Apr1,42918.8070,72622.10 24-Apr-25,26618.1021,95622.50 8-May5,88217.2029,26022.60 22-May16,30615.8615,73022.56 5-Jun21,46015.703,65622.00 19-Jun13,00615.80-5,50222.00 3-Jul28,53216.3062,55921.90 17-Jul-21,18515.34-18,65621.78 31-Jul29,47115.7959,33821.79 14-Aug-5,06214.909,33821.80 28-Aug5,61214.0921,61620.51 11-Sep18,37413.248,12320.19 25-Sep47,19712.6230,21519.79 9-Oct17,16010.7541,34719.98 23-Oct-21,7509.658,40819.02 6-Nov23,1479.7814,36018.55 23-Nov7,056.6310.0818,617.3019.03 *At the end of fortnight                                                                       Source: RBI

Even though there has been an improvement in the growth rate, it is far below the Reserve Bank of India’s (RBI’s) projection of 18 per cent increase in the year up to March 2010.

“The credit growth figures are definitely a concern. We were expecting credit growth to pick up from the third quarter of last year, but that has not happened even in the second half of November,” said Rupa Rege-Nitsure, chief economist at Bank of Baroda.

“It will take some more time since there is a lag in recovery and pick-up in credit demand.

Besides, why should a company access bank credit when it can raise funds through other sources at cheaper rates?” said an economist at an international bank.

Bankers said there was credit demand mostly from sectors that had directly benefited from the government stimulus package such as auto, commercial vehicles, roads and low-cost housing.

“One of the reasons for the tepid credit growth could be that companies are preferring to draw from their cash reserves rather than borrow from banks for capital expenditure,” said Shubahda Rao, chief economist, YES Bank.

Bank deposits rose Rs 18,617.30 crore to Rs 41,85,923 crore during the fortnight.

On a year-on-year (Y-o-Y) basis, bank deposits went up by 19.03 per cent as against 18.55 per cent for the fortnight ended October 23.