Banks should review spreads: Survey

ECONOMIC SURVEY 2007-08

CREDIT OFFTAKE: Banks' credit grew by only 21.5% till January 4, 2008, compared to 30.8% on January 5, 2007.

The fear of a further dip in bank credit growth still looms large. The Survey today said banks may have to review their spreads "suitably" to ensure that credit offtake by productive sectors is maintained facilitating the growth ,momentum of the economy.

" With the transition of the Indian economy to a higher growth trajectory, the provision of adequate and timely availability of bank credit to the productive sectors of the economy has acquired importance. As public sector banks still own about 71 per cent of the assets of the banking system, they continue to play an important role in responding to the changes in the economic environment,'' said the survey.

Finance Minister P Chidambaram has already taken due steps in this regard. At his recent meeting with public sector bank chairmen, he had urged them to rebalance their portfolio depending on the economic environment.

The current environment calls for banks to boost the offtake of consumption in order to create demand in the market. Following this meeting, many public sector banks slashed lending rates on retail loans, particularly home loans.

The credit-deposit ratio of banks reached an all-time high of 74 per cent in March-end 2007. This was despite a deceleration in banks' credit growth to 28 per cent from 30.8 per cent in March-end 2006.

The Reserve Bank of India's (RBIs) policy interventions reduced credit growth sharply during the current financial year, with the banks' credit growing by only 21.5 per cent till January 4, 2008, compared to 30.8 per cent on January 5, 2007.

Credit disbursement to the commercial sector has dipped to well below the indicative target of 24-25 per cent growth for 2007-08. The C-D ratio has consequently decreased to 71.8 per cent as on January 4, 2008 ,compared to 74 per cent on January 5, 2007.