Good non-food credit offtake expansion seen

RBI REPORT ON CURRENCY & FINANCE: 2002-03

Reserve Bank of India (RBI) said non-food credit offtake from banks recorded a larger expansion on a year-on-year (y-o-y) basis, while food credit contracted reflecting a further decline in food stocks.

It observed that housing credit, which has emerged as an important driver of credit growth, benefiting from tax incentives as well as softening of interest rates, increased by 222 per cent since end-March 2000.

In absolute terms (on y-o-y basis) non-food credit extended by banks up to January 9, 2004 was Rs 75,717 crore (Rs 65,117 crore up to January 10, 2003). Food credit declined by Rs 12,943 crore (as against a fall of Rs 3,836 crore).

Bank credit to the commercial sector has shown signs of pick up since August 2003, the central bank said in its "Report on Currency and Finance - 2002-03".

The RBI, however, said bank credit to industry declined in the April-November 2003 period due to increased recourse to internal sources of financing as well as higher external commercial borrowings by corporates.

The decline in credit to industry was mainly on account of industries such as petroleum, fertilisers, coal, iron and steel, cotton textiles and cement.

On the other hand, industries such as infrastructure, electricity and gems and jewellery recorded an increase in credit.

In the face of increased capital flows, commercial banks' holding of government and other approved securities increased sharply during the year.

As a result, scheduled commercial banks' holding of government and other approved securities - was much higher than the prescribed statutory liquidity ratio of 25 per cent - increased even further during 2003-04, reaching 41.4 per cent by end-December 2003.

The increase in excess liquid funds of banks i.e. the resources still available after meeting statutory pre-emptions and credit offtake, flowing into gilts contributed to the reduction of the yields across the spectrum.