Low bank credit growth won't hit recovery: RBI

The Reserve Bank of India (RBI) today said low bank credit growth would not hamper the country’s economic recovery.

“Growth of bank credit, as sluggish as it may be, is not a significant constraint on the recovery. It may be the source of some concern from the banking perspective but not acting as a constraint on the real economy,” RBI Deputy Governor Subir Gokarn said, adding the country was in the middle of a modest recovery.

Bank credit growth was 10.5 per cent year on year as on December 4, far below RBI’s projection of 18 per cent for 2009-10.

Though RBI feels that a domestic recovery is gaining momentum, the growth pattern is skewed as it is driven by only a few sectors and it is the government spending which is making significant contribution to the growth.

RBI, which will announce the fourth quarter review of its annual policy end January, said there was a possibility of revisiting projections of credit growth and gross domestic product (GDP) numbers.

When asked whether the robust GDP growth numbers give the central bank the comfort level to exit the accommodative monetary policy stance, Gokarn said: “Every new bit of information adds a little bit details to the story and gives the judgment a little more robustness. We have to keep processing information, new information coming in and somewhere there may be a tipping point. I cannot answer whether we have made that judgment.”

Gokarn also said that at an aggregate level, liquidity was comfortable.

“When you look at liquidity from an aggregate perspective, that is LAF, MSS, and government balances with RBI, that points to a level of cushion in the system that is consistent with a reasonable acceleration in GDP growth. At this point, liquidity is very comfortable,” Gokarn said on the sidelines of a seminar organised by the Indian Merchants’ Chamber.

The RBI deputy governor also expressed concern that the food inflation, currently at 18.65 per cent for the week ended December 12, might spiral into a broader inflation. “As growth accelerates, supply-side drivers could translate into wider pressures,” he said.