Leaves banks with an uphill task of disbursing Rs 2.8 lakh cr in the rest of the financial year.
The growth in bank advances in the first nine months of 2011-12 remained dismal, leaving them an uphill task of disbursing Rs 2.8 lakh crore in the rest of the financial year. This is to meet the annual credit growth of 18 per cent projected by the Reserve Bank of India (RBI).
The target seems unachievable if compared to the loan growth witnessed in the last quarter of previous financial years. The credit growth of Rs 2.23 lakh crore in the January-March quarter of 2009-10 was the highest in the past five financial years.
“The investment climate is subdued and, therefore, new projects are not coming in. So, the system as a whole may witness slight reduction in overall growth this year,” said M D Mallya, chairman and managing director, Bank of Baroda. He expects credit growth to be in the range of 16-17 per cent by March-end 2012.
According to data from RBI, bank loans grew Rs 4.27 lakh crore in the April-December 2011 period thereby registering 10.8 per cent growth in the financial year so far. Credit growth in the corresponding period last year was 16 per cent. On a year-on-year basis, credit growth was 15.9 per cent as on December 30. Banks disbursed about Rs 1.5 lakh crore in the third quarter of financial year 2011-12. RBI in its second-quarter review of monetary and credit policy 2011-12 had revised year-end credit growth projection from 19 per cent to 18 per cent. It is expected the central bank may further cut the credit growth projection in the third quarter review of monetary and credit policy scheduled on January 24.
“Given the current sequential pace of credit growth, it is likely RBI will revise downwards its projection for the year,” said Sajjid Chinoy, India economist, JPMorgan. “Slowing credit demand also reduces the need for a liquidity infusion through a cut in the cash reserve ratio.”
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The repo rate hardened by 175 basis points in April-December 2011, as the central bank pursued monetary tightening policy to clamp high inflation. Banks in turn increased their lending rates to cover the increased cost of borrowing. Costlier loans and bleak macro-economic outlook has weighed on credit demand.
Economists at Barclays Capital expect RBI to shift to monetary easing from July 2012, with a probability of early action in March 2012.
“Despite a more manageable inflation outlook and a recent string of relatively dovish comments from senior policymakers, RBI may not be in a position to begin its monetary easing cycle just yet,” said Siddhartha Sanyal and Rahul Bajoria in a report.