Reflecting the aversion of banks to lend and a drop in demand, fresh flow of bank loans has witnessed a decline in the first fortnight of this month.
According to the latest data released by the Reserve Bank of India (RBI) today, lending by scheduled commercial banks, including regional rural banks, during the fortnight ended January 16 fell to Rs 13,837 crore, as against Rs 14,469 crore during the 14-day period ended January 2. This represented a decline of 0.5 per cent. During the fortnight ended December 19, 2008, lending by scheduled commercial banks rose by Rs 2,419 crore.
As a result of the fall during the first half of January, the year-on-year growth in advances fell to 22.14 per cent as on January 16, from 24 per cent a fortnight ago.
Yesterday, the central bank raised the non-food credit growth projection for the current financial year to 24 per cent, from 20 per cent, in the wake of the demand for funds shifting from equity and overseas markets to the Indian banking system.
In recent months, incremental bank credit has dropped as banks are wary of lending, especially to sensitive sectors such as real estate and non-banking finance companies, and are instead bolstering their government securities holdings. This is reflected in the rise in the statutory liquidity ratio from 25.8 per cent in mid-October to 28.9 per cent in early January. Statutory liquidity ratio consists of approved securities that banks can invest in.
During the fortnight ended January 16, the effect of a reduction in deposit rates was visible with banks mopping up Rs 11,316 crore, as against nearly Rs 70,000 crore in the previous fortnight. So, the fortnightly deposit growth rate fell from 1.97 per cent to 0.3 per cent. On a year-on-year basis, the deposit growth was estimated at 20 per cent, against the 19 per cent projection by the RBI.
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As a result of the slowdown in fresh deposit mobilisation, bank investment in government securities and other approved securities dipped by 0.67 per cent during the fortnight ended January 16, as against a 5.7 per cent rise witnessed during the previous fortnight. During the fortnight, banks parked Rs 7,788 crore in the government securities.
A banker also said that apart from investing in government and other approved securities, money would have flown into corporate bonds. In addition, banks may have parked funds in the reverse repo window.