Bank credit growth slides to 27% in 2006-07

Bank credit growth decreased to 27 per cent in 2006-07 from 29.6 per cent a year earlier, as a result of stiffer monetary tightening since December, 2006. The year-on-year growth in bank credit till December 29, 2006, was 30.1 per cent.

The Reserve Bank of India (RBI) has hiked the cash reserve ratio (CRR) by 150 basis points, sucking out about Rs 43,000 crore from the banking system, and raised the repo rate by 50 basis points to 7.75 per cent. The CRR is the portion of deposits that banks are required to keep with the RBI.

The increase in credit in the last fortnight of March, the time when there is normally a flurry of year-end activity, at Rs 57,041 crore was less than Rs 65,996 crore in the corresponding period of last year, according to the RBI data.

"This is indeed an indication of a change in the activity level. The liquidity problem was acute in the last 15 days of 2006-07 and therefore banks experienced limitations in lending," a Bank of India official said.

Bank deposits rose by 22.40 per cent to Rs 26,75,594 crore at the end of March, from the previous year. The time (term) deposits rose by 23.75 per cent to Rs 22,42,082 crore and demand (current account and savings account) deposits showed a growth rate of 15.8 per cent at Rs 4,33,512 crore.

The slow increase in deposits was a reflection of a large part of savings, in the latter part of the year, moving into fixed deposits on account of a significant increase in deposit rates.