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With no significant improvement in activity in the corporate sector, bank borrowings from these continues to remain low.
According to Reserve Bank of India (RBI) data, credit to business increased only by 6.4 per cent in April this year compared with the increase of 12.3 per cent in same period last year. The regulator said deceleration in credit growth to industry was observed in all major sub-sectors.
RBI had cut the key lending rates which had been passed on by banks to the end consumer. Despite the reduction, lending activities continue to remain sluggish because of a lack of new projects picking up.
"Rate of interest is one element. It cannot be the sole element because if there is a reduction in rate of interest, people will not come to borrow even if they don't need it. First prerequisite for borrowing is that there has to be a need, there has to be a project. Then comes the question of whether you borrow at this rate or not." said S S Mundra, deputy governor, RBI.
At the end of April 2015, credit to the services sector increased only by 7.5 per cent compared with the increase of 17 per cent in the corresponding period last year. Lending to other sectors such as personal loans and credit to non-banking financial companies (NBFCs) also grew at a slower pace.
Banks' non-food bank credit increased by 8.9 per cent in April compared with the increase of 14.2 per cent in the same month last year. In the same period, credit to agriculture and allied activities increased by 14.1 per cent, down from 14.8 per cent in April 2014.
