Credit growth zooms in last fortnight of 2009-10

Banks beat RBI’s estimate of 16 per cent credit growth for the year.

A record growth in loan disbursals in the last reporting fortnight of financial year ended March 31 helped banks sail past the Reserve Bank of India’s (RBI’s) estimate of 16 per cent credit growth for the year.

Banks disbursed an additional Rs 1,15,548 crore in 15 days up to March 26, 2010, almost 25 per cent of the Rs 4,64,849 crore disbursed in the entire financial year.

The unusually high disbursals pushed year-on-year growth in credit to 16.74 per cent at the end of the financial year.

Banks typically step up disbursals in the last weeks of a quarter, even more so towards the end of the year, to meet targets. However, disbursals in the fortnight up to March 26, 2010, are high even by year-end standards, dwarfing the Rs 79,500 crore disbursed in the last fortnight of financial year ended March 31, 2009.

Bankers are sanguine about the spurt in credit growth. They say the pick-up is broad-based but it is early to say that credit growth is on a strong wicket. “Steps aimed at providing stability to the business environment will help the pace of lending to support the estimated 8.5 per cent GDP (gross domestic product) growth in 2010-11,” said a senior executive of a public sector bank.

A senior State Bank of India official said the year-end spurt was because of a combination of pent-up demand as well as a push to meet targets. India’s largest lender expanded its loan book by 17 per cent in 2009-10.

“We do not expect a sharp drop in credit growth in April,” he said, referring to banks’ practice of disbursing ultra short-term loans at year-end, which are paid back in subsequent fortnights.

Bank of Maharashtra Chairman and Managing Director Alan Perera said the growth reflected genuine demand from a range of segments, including manufacturing and agriculture. “There is a share of short-term loans (90-180 days) which are used to meet working capital requirements. Many public sector companies have been taking short-term loans for regular business operations,” he added.

After dropping to a 12-year low in October last year, credit growth picked up smartly in the last quarter of the financial year.

In fact, last quarter’s disbursals accounted for 47 per cent fresh loans made in the financial year.

In the fortnight up to March 26, 2010, banks added Rs 83,330 crore in fresh deposits, putting year-on-year growth in deposits at 17.01 per cent.