Mergers in the banking industry pushed up growth in money supply in 2002-03 by 15 per cent to Rs 2,24,576 crore.
This is as against a growth rate of 14.2 per cent a year back when M3 rose to Rs 1,86,782 crore. Net of mergers, however, M3 increased by 12.1 per cent to Rs 1,81,984 crore, which was well within the projected trajectory.
Consistent with the expected growth in gross domestic product and inflation, the projected expansion in broad money (M3) for 2003-04 has been placed at 14 per cent.
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As the projected expansion of money supply is on a higher base, including the mergers that took place in the banking industry, the volume of liquidity would be adequate to meet the credit needs of the productive sectors of the economy.
Consistent with this order of growth in M3, an increase in aggregate deposits of scheduled commercial banks is set at Rs 1,79,000 crore. Non-food bank credit including investments in commercial paper, shares/debentures/bonds of PSUs and private corporate sector is projected to increase by 15.5-16.0 per cent, which should be adequate to facilitate the sustenance of growth in industrial activity during 2003-04.
Growth in aggregate deposits of scheduled commercial banks (SCBs) rose by 12.2 per cent net of mergers (16.1 per cent with mergers) in 2002-03.
This was lower than that of 14.6 per cent in the previous year. The expansion in currency with the public was lower at 12.5 per cent (Rs 30,263 crore) as against 15.2 per cent (Rs 31,849 crore) in the previous year.
Despite a sharp increase in foreign exchange assets of RBI, 2002-03 was marked by a lower growth in reserve money by 9.2 per cent (Rs 30,960 crore). In the preceding year, reserve money increased by 11.4 per cent (Rs 34,659 crore).
There has been a favourable increase in credit flow to the commercial sector during 2002-03, reflecting industrial recovery.
During the year, non-food credit of SCBs registered a high growth of 26.2 per cent (Rs 1,40,144 crore) and, net of mergers, it rose by 17.8 per cent (Rs 95,599 crore). This is as against an increase of 13.6 per cent (Rs 64,302 crore) in the previous year.
The incremental non-food credit-deposit ratio during 2002-03 at 79 per cent is the highest recorded over the last five years.
This is indicative of the fact that a substantial part of lendable resources of banks has been deployed for productive purposes.
This is also borne out by the strong growth of 10.3 per cent in demand deposits in 2002-03, which is mainly used for working capital requirements.