Credit grows in July second half despite tight liquidity conditions

Loan book of banking system had shrunk by Rs 16,620 crore in previous fortnight (July 12, 2013)

Bank credit expanded during the second half of July despite very tight liquidity and market conditions. With short term money market almost coming to a grinding halt, companies used bank sanctioned credit lines to meet fund requirements.

Banks advances rose by Rs 6,861 crore to Rs 54,05,248 crore in the fortnight ended July 26, 2013, according to Reserve Bank of India (RBI) data. The year-on-year pace of credit disbursal was 14.9%.

The loan book of banking system had shrunk by Rs 16,620 crore in the previous fortnight (July 12, 2013).

Bank executives said there is demand for working capital from companies. Till early July they raising funds through commercial paper as rates were cheaper in short term money market compared to bank loan rates. But scenario changed after RBI took steps to curb liquidity to halt slide in rupee value.

It pushed money market rates even beyond base rate of banks. As a consequence the demand shifted bank sanctioned credit.
Senior IDBI Bank official said overall corporate demand is down, reflecting tepid economic growth. But the retail demand especially for home loans remains encouraging.

The deposits grew by Rs 6,984 crore in the fortnight to Rs 70,86,845 crore. The deposit growth in 12 months ended July 26, 2013 was 13.3%.