Letters: Credit, stocks and flows

In analysing the statistics on bank advances, the data on the total outstanding credit (stock) of the institutions are utilised. The difference in the amounts between two dates is interpreted as the credit extended (flow). Conceptually, the outstanding credit at the end of a period is equal to that at the beginning plus fresh lendings minus repayments (the last two during the period). The true flow of credit relates to principal only. The problem facing a researcher is that the outstanding stock at a point of time, published now, includes interest and the principal. In both cases, a part is made up of data on non-performing assets (NPAs). At a time of rising NPAs, a significant proportion of the so-called increase in credit between two points of time may be accounted for by the interest element and rising overdues. The Reserve Bank of India needs to look into the matter and devise measures to capture the true data relating to fresh advances (flows) of banks.

A Seshan Mumbai

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