Bank credit growth lowest in 5 years

The rate falls to 15.86% for the fortnight ended May 22.

Low disbursements have resulted in a fall in the year-on-year bank credit growth to 15.86 per cent, the lowest level in nearly five years.

According to the latest data released by the Reserve Bank of India (RBI) on Thursday, bank credit dropped by Rs 16,306 crore to Rs 27,35,750 crore during the fortnight ended May 22, 2009, from Rs 27,52,056 crore at the end of the previous fortnight.

As a result, year-on-year growth dropped to 15.86 per cent, as against 17.20 per cent at the end of the previous fortnight. Bank credit had expanded 25.50 per cent year-on-year during the corresponding period last year. In the corresponding fortnight in 2008, credit flow had increased by Rs 43,303 crore.
 

CASH SQUEEZE
Fortnight- ended	Credit flow (Rs cr)	Y-o-Y growth (%)*	Deposit mobilised (Rs cr)	Y-o-Y growth (%)*
10-Apr	1,429	18.80	70726.00	22.10
24-Apr	-25,266	18.10	21956.00	22.50
8-May	5,882	17.20	29260.00	22.60
22-May	16,306	15.86	15730.00	22.56
* At the end of fortnight                                                    Source: RBI

This is the lowest growth since March 24, 2004. Bank credit grew 13.8 per cent in this fortnight.

Bankers said companies were reviving some of their projects but disbursements had been slow. The head of a public sector bank said only one-third of the loans sanctioned over the last six-seven months had been disbursed.

Apart from the lower demand for funds due to fewer new projects, last year’s high base is also behind the sharp moderation in growth rates.

The RBI has projected credit flow expansion at 20 per cent during the current financial year, as against 17.3 per cent for the year up to March 2009.

However, going forward, bankers expect the flow to pick up, partly due to signs of the worst being over. “The decline in bank credit is temporary. There is enough demand in the system and in the coming month, we will see around 20 per cent growth in the system. There is a lag effect between sanctions and disbursals,” said a public sector bank executive.

In addition, with banks expected to lower lending rates further, demand from retail as well as corporate borrowers is expected to pick up. Following the finance minister’s meeting with public sector bank chiefs on June 10, prime lending rates could drop by 50-100 basis points, said a senior bank executive.

Partly due to risk aversion and partly on account of lower demand, banks are finding it easier to park funds in short-term instruments such as liquid funds of mutual funds and also through the RBI’s reverse repo window, which has seen daily accretion of around Rs 1,20,000 crore for the last seven-eight weeks. Although bank deposit grew 15,730 crore, bank investment in government securities dropped by Rs 10,519 crore during the fortnight.

This can also be gauged from the fact that on a year-on-year basis, deposits grew 22.56 per cent during the fortnight ended May 22, 2009, with the total amount estimated at Rs 39,67,995 crore.

With banks lowering deposit rates over the last few months, growth in time deposits, that have a tenure of more than a year, was estimated at 24.12 per cent during the year up to May 22, while the growth in demand deposit was 12.90 per cent during the period.