Bank credit growth rises 26% despite RBI measures

The Reserve Bank of India (RBI) on Wednesday said the flow of credit from scheduled commercial banks, including regional rural banks, went up by 26 per cent on a year-on-year basis to Rs 24,91,248 crore as of Sepetember 12 this year, as against Rs 19,76,139 crore.

The growth is higher than the 23.4 per cent reported in the corresponding period last year and also more than the 20 per cent non-food credit growth being targeted by RBI this year. Despite repeated rate hikes, credit growth has hovered around the 25-per cent mark.

The rise in bank credit is attributed to high demand for funds from oil firms and the infrastructure sector. However, high credit growth had put pressure on RBI earlier. An executive at a foreign bank said that the growth is mainly driven by acceleration in demand from manufacturing and infrastructure sector.

 

“The infrastructure sector has a substantial share in the present credit growth,” said Central Bank of India Executive Director, S Subbaraman.

He said projects for which loans were sanctioned earlier are now drawing the funds.

The public sector oil markting companies, which have been unable to raise prices and have not been compensated by the government either, are using credit facilities from banks.

A senior executive with a Mumbai-based public sector bank pointed out that the growth so far is robust but future could be different on account of inflation and rising input costs.

“When it comes to fresh sanctions for industrial and infrastructure projects, there is a certain dampening of pace due to a distinct slowdown in economic activity. Banks are very much cautious about the cost of funds and risks of defaults,” he said.

The RBI data also said that the deposits with scheduled commercial banks till September 12 rose 22.5 per cent to Rs 34,05,377 crore from Rs 27,80,085 crore in the same period last year. The growth in deposits is also higher than the RBI target of 17 per cent. This includes demand deposit with a tenure of up to one year, which rose 21.5 per cent to Rs 4,68,370 crore and time deposit by 23 per cent to Rs 29,36,987 crore.

The higher growth is being attributed to an increase in deposit rates.