Private banks' credit growth in single-digits

A sharp decrease in lending by private and foreign banks has pulled down the year-on-year (y-o-y) growth in credit by all scheduled commercial banks (SCBs) to 16.3 per cent as of July 3, 2009. It was 25.5 per cent a year ago.

Credit outstanding for private banks was Rs 5,08,707 crore as of July 3, 2009, a meagre 4.2 per cent rise over the corresponding date last year, according to data from the Macroeconomic and Monetary Developments First Quarter Review presented by the Reserve Bank of India On Monday.

Foreign banks did even worse with total outstanding credit shrinking 7.1 per cent on a y-o-y basis to Rs 1,58,971 crore. This compares with a 22.3 per cent y-o-y growth in credit for private banks and 33.3 per cent increase for foreign banks as of July 4, 2008.

In contrast, credit extended by public sector banks increased 22 per cent to a total outstanding amount of Rs 20,63,202 crore.

Since September 2008, RBI has reduced the policy repo rate by 425 basis points and the reverse repo rate by 275 basis points, thereby pumping Rs 5,61,700 crore into the banking system, apart from the Rs 40,000 crore made available by the relaxation of Statutory Liquidity Ratio (SLR) requirement of banks.

RBI noted that the expansion in non-food credit to the commercial sector witnessed a sharp deceleration and remained below its projected trajectory of 20 per cent growth for 2009-10.

“Non-food credit growth (y-o-y) of SCBs that reached its peak in October 2008 witnessed deceleration thereafter. This trend also continued in the first quarter of 2009-10.”

It added that while it is not unusual for the first quarter to show deceleration in the expansion of credit because of seasonal factors, the deceleration was particularly pronounced during the first quarter of 2009-10.

This was partly because of the decline in credit by Rs18,796 crore to petroleum and fertiliser companies during April-May 2009, as against an increase of Rs 6,530 crore in the corresponding period of the previous year.