Fresh loan disbursals by banks to oil companies resulted in credit flow rising by Rs 10,031 crore during the fortnight-ended February 13. The growth came after two fortnights of decline when overall credit flow fell by around Rs 22,709 crore.
At the end of February 13, outstanding credit of scheduled commercial banks, including regional rural banks, was estimated at Rs 26,46,783 crore. On a year-on-year basis, credit growth was estimated at 19.5 per cent, as against 19.3 per cent on January 30, 2009.
Expecting a shift in demand for loans to the Indian banking system, the Reserve Bank of India raised the credit growth projection to 24 per cent from 20 per cent. The central bank expected that Indian companies would depend on local banks to raise resources at a time when inflows from overseas and equity markets had virtually stopped.
| MONEY MATTERS | ||
| Fortnight ended | In Rs cr | Y-o-Y (%) |
| Jan-02 | 14,469.00 | 24.00 |
| Jan-16 | -13,837.00 | 22.10 |
| Jan-30 | -8.872.00 | 19.30 |
| Feb-13 | 10,031.36 | 19.50 |
After the credit crisis intensified in September, there was pressure on Indian banks to lend more, resulting in credit growth nearing the 30 per cent mark. Demand from oil companies, which were not compensated for selling subsidised fuel, added to the pressure.
Finance Secretary Arun Ramanathan is due to meet public-sector bank chiefs over the next few days to impress upon them the need to step up lending to productive sectors. In addition, RBI Governor D Subbarao is scheduled to meet bank chairmen on Friday though the agenda for the discussions is not known.
A senior banker said the central bank is interested to get feedback from banks periodically,especially after the financial turmoil. This meeting is part of such an exercise.
“The marginal growth in credit is mainly because of short-term borrowing by oil firms to meet their requirements as there is a shortfall in flow of funds from the government,” said senior banker.
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While the demand for loans from companies and individuals remained subdued, bankers said that they are watching the trends over the next two fortnights. They said there is a large demand for loans from the infrastructure sector, manufacturing and non-banking finance companies (NBFCs).
“There are fears of higher delinquency due to the slowdown. Although there is demand in the system, banks are bound to be cautious,” said a public-sector bank executive, adding that banks are more comfortable lending to existing clients.
“Banks’ advances will grow only when the inventory is cleared since most companies have either postponed work on new projects or are using their internal accrual to meet the funding needs,” said Union Bank of India General Manager V K Khanna.
In addition, lenders such as ICICI Bank, which were aggressive in the market till 12 months ago are restructuring their operations and are not focusing on lending and are instead shrinking their loan book.