Credit off-take for the fortnight ended November 6 saw an increase of over 9 per cent -- the slowest growth in 12 years.
Analysts said the slowdown in credit expansion would make it difficult for the Reserve Bank of India (RBI), concerned as it is over rising inflation, to hike interest rates.
According to data released by the RBI today, credit expansion increased by 9.07 per cent at Rs 28,73,062 crore compared to Rs 26,12,401 crore in the corresponding fortnight a year ago.
In absolute term, the credit expansion was to the tune of Rs 2,60,661 crore.
Some analysts said the decline is because of a slowdown in demand for loans primarily from the corporate sector. With stock markets recovering, companies in emerging markets like India have raised funds through equities which has replaced the need for bank funding.
However, with a pick-up in industrial growth, the credit off-take should rise in the remaining months of the current fiscal, they added.
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Union Bank of India Chairman and Manging Director M V Nair said credit growth is low because of the slowdown in the economy. The demand from the corporate sector is somewhat subdued. It should pick up in the coming months as the economy is showing some signs of recovery, he said.
For the month ended September, industrial production accelerated to 9.1 per cent in September against 6 per cent a year ago.
All major sectors -- manufacturing, mining and power generation -- showed higher growth. Even consumer durables output rose, indicating robust demand for these products.
According to the RBI data, deposits grew by 18 per cent in the same period.
The outstanding deposits at the end of November 6 stood at Rs 43,03,997 crore against Rs 36,22,385 crore in the corresponding fornight a year ago.