Growth in bank credit slows

Credit off-take remained subdued at Rs 5,882 crore during the fortnight ended May 8, 2009, as bank customers kept borrowing plans on hold on expectation of another round of reduction in lending rates.

According to the latest data by the Reserve Bank of India (RBI), up to May 8 2009, credit extended by scheduled commercial banks grew 17.2 per cent on a year-on-year basis to Rs 27,52,056 crore, as against a rise of 23.4 per cent during the corresponding period of the previous year. At the end of the fortnight ended April 24, bank credit had expanded 18.1 per cent on a year-on-year basis.

However, banks lent more than the corresponding fortnight last year when the economy was growing over 9 per cent. During the fortnight ended May 9, 2008, credit off-take had declined Rs 11,964 crore.

“There is hope of a rate cut by banks after the formation of the new government. Therefore, people are postponing their borrowing plans. At present, there is little demand in the system,” said a senior bank executive. The finance ministry has advised banks to bring down lending rates.

Another bank executive pointed to the improving economic environment. “The drawdown of credit sanctioned earlier is happening in case of infrastructure and real estate firms. Some of them had postponed use of credit lines when the business environment was uncertain till February. Now, there is change in perception about business prospects with some signs of recovery,” he said.

During the year up to May 8 this year, deposits grew 22.6 per cent to Rs 39,52,264 crore, as against Rs 32,23,265 crore in the corresponding period last year. During the fortnight, deposits went up by Rs 29,259.6 crore.

Over the last two months, banks have reduced deposit rates.

“Depositors have few avenues to park funds. We have reduced the rates to avoid a high deposit base. Since demand is not picking up significantly, it becomes difficult to deploy the accumulated funds,” said a public sector bank executive.

Bankers said there would be another round of reduction in deposit rates. This might be followed by a cut in prime lending rates, they added.

As a result of increase in deposits, banks’ investment in government securities went up by Rs 33,364 crore during the fortnight ended May 8, 2009.