Credit to commercial sector up three-fold in April-June

Reflecting the strong growth in demand for credit from the commercial sector, fund flow to the sector increased three-fold in the first quarter of the financial year — driven mainly by credit flow from the banking system, housing finance companies and demand for funds for initial public offers (IPOs).

Total fund flow to the sector rose to Rs 2,50,210 crore in April-June from Rs 61,475 crore in the corresponding period last year. The banking system accounted for roughly 65 per cent of the total flow of funds to the sector. Bank credit rose 21.7 per cent on a year-on-year basis.

According to the latest Macroeconomic and Monetary Development Report by the Reserve Bank of India (RBI), the flow of funds from non-banking sources went up 49 per cent. This was due to such domestic reasons as public issues by non-financial entities, external commercial borrowings and issuances of American depository receipts (ADRs) and global depository receipts (GDRs).
  

HUNGRY FOR FUNDS FLOW OF FINANCIAL RESOURCES TO COMMERCIAL SECTOR
Sector	2009-10	2010-11
Adjusted non-food bank credit	2,529	1,62,373
Non-food credit	8,555	151640
Flow from non-banks	58,946	87,837
Domestic sources	38,659	54,091
Net issuance of CPs subscribed by  non-banks AIFIs - Nabard, NHB,  Sidbi and Exim Bank	27,134	29,178*
Net credit by housing finance companies	-892	4,028#
Systemically important  non-deposit taking NBFCs	8,004	14,859#
LIC’s investment in corporate  debt, infra & social sector	8,517	3,936#
Foreign sources	20,287	33,746
External commercial borrowings/FCCBs	-1,805	9,091
ADR/GDR issues, excluding banks	215	4,832
FDI to India	21,877	19,823#
Total flow of resources	61,475	2,50,210
Investments in debt (non-Gilt) Schemes of mutual funds	80,149	8,335
#April-May, 2010;  *Up to June 15, 2010                           (All figures in Rs crore)                                                                                                        Source: RBI

While banks saw demand pick up from telecom companies for 3G and BWA spectrum payments, companies used the IPO route to raise funds. Total funds raised through public issues by non-financial entities went up to Rs 5,187 crore from Rs 236 crore during the same period last year.

At the same time, Life Insurance Corporation of India’s net investment in corporate debt, infrastructure and social sector dropped 54 per cent from Rs 8,517 crore to Rs 3,936 crore. It invested around Rs 9,000 crore in equities.

Foreign direct investment fell marginally to Rs 19,823 crore in April-June 2010-11 from Rs 21,877 crore in April-June 2009-10. With an improvement in the overseas market, borrowing from external sources rose to Rs 9,091 crore.

As a result of huge demand for credit from the commercial sector, banks withdrew large amounts from mutual funds.

Funds from foreign sources in the form of ADRs and GDRs rose to Rs 4,832 crore from Rs 215 crore.