Outstanding loan dues in the banking system shrunk by Rs 11,167 crore in the first fortnight of January, in line with the fall in credit in the period.
The loan portfolio of banks stood at Rs 43, 54,477 crore as of January 13, according to Reserve Bank of India (RBI) data. The year-on-year rise in credit expansion was 17 per cent at the end of January 2011.
Outstanding deposits declined by Rs 29,208 crore to Rs 57, 98,700 crore. The year-on-year growth stood at 17 per cent.
Bankers said the decline in absolute credit was normal, but the loan growth was expected to remain subdued in the quarter ending March. Some of the short-term credit extended to meet quarter-end targets was unwound in the reporting fortnight, said a senior executive with a public sector bank.
In the third-quarter review of monetary policy, RBI said though some slowdown was expected due to monetary tightening, the pace had decelerated more than expected.
The central bank had cut the credit growth estimate for FY12 from 18 per cent to 16 per cent. In April, RBI had pegged credit growth at 19 per cent. Apart from moderating economic activity, the slowdown also reflects increasing risk aversion by banks due to an increase in non-performing assets. While banks have a case to be prudent in sanctioning loans, risk aversion could adversely affect credit flow to productive sectors, RBI said.