Slips to 17.27% despite disbursal of Rs 79,500 cr in the last fortnight of FY09.
Despite banks disbursing nearly Rs 79,500 crore during the second half of March, credit growth slowed down to 17.27 per cent during 2008-09, as against 21.60 per cent in the previous financial year.
Though the lower demand for credit and the deteriorating economic situation pulled down overall loan growth, it was business as usual during the last fortnight of 2008-09 with banks lending Rs 79,499 crore, as against Rs 75,891 crore in the corresponding period of March 2008.
Typically, banks step up lending during March to increase the size of their loan books and to meet annual targets. During March 2009, the total credit disbursed was estimated at over Rs 1,01,000 crore, as against Rs 97,281 crore in the same period last year. In February this year, banks had disbursed Rs 31,752 crore.
Despite offering lower interest rates during 2008-09, credit flow grew at its slowest pace since 2003-04.
The increase was much lower than the original projection of 20 per cent for the year, which was subsequently revised to 24 per cent on the expectation that demand for funds would shift to Indian banks due to tight liquidity conditions in overseas markets and the volatility in the stock markets.
According to the latest data released by the Reserve Bank of India (RBI) today, food credit dropped by Rs 1,691 crore to Rs 46,211 crore at the end of March 28.
At the end of the last financial year, the total outstanding food and non-food credit was Rs 27,70,012 crore, as against Rs 23,61,913 crore in 2007-08.
“To get a true picture on the revival of credit flow, we should observe the trend after the second fortnight of April,” said a bank executive. Others, however, said that the overall environment had improved marginally.
“There is some seasonal demand, which is genuine. The process of rice milling and cotton procurement is underway in some parts of the country, which also pushed up demand,” said the credit head of a public sector bank headquartered in South India.
Bankers said that they were lending to all sectors, except diamond, textiles and real estate, which have been badly hit by the economic slowdown.
Slowest deposit growth in three years
Like credit flow, deposit growth too slowed down despite banks offering higher interest rates between October and December.
On a year-on-year basis, deposits grew 19.8 per cent to Rs 38,30,321 crore at the end of March 28, 2009, compared with a 22.2 per cent rise in 2007-08.
What affected deposit mobilisation was the 0.8 per cent drop in demand deposits as investors moved funds from deposits with a tenure of less than one year to brackets that earned them higher interest rates. Time deposits, however, grew by 23.83 per cent last year, as against 0.02 per cent in 2007-08.
With deposit rates falling over the last three months, demand deposits rose by Rs 43,860 crore during the last fortnight of the year, while time deposits increased by Rs 5,396 crore.
“When the differential between demand and time deposit falls, people tend to shift money to demand deposit which is more liquid,” said Bank of India General Manager V K R Agrawal.
The deferential between demand and time deposits has come down to 4-5 per cent with a fixed savings rate of 3.5 per cent and the return on term being around 7.5-8.5 per cent.
Typically, towards the end of the year, investors also move cash away from their banks to other instruments, such as life insurance and public provident fund, to earn tax benefits.
During March, deposits grew by Rs 6,419 crore, with demand deposits up by Rs 45,440 crore and time deposits by Rs 453 crore. In March 2008, deposits had increased by Rs 37,904 crore.
| IN THE SLOW LANE | |||||
| Fortnight-ended | Credit flow (Rs cr) | Y-o-Y * growth (%) | Deposits (Rs cr) | Y-o-Y growth (%)* | SLR investment (Rs cr) |
| Oct 10 ‘08 | 64,937 | 29 | 27,221 | 22 | –6,533 |
| Oct 24 ’08 | 7,637 | 29 | 16,862 | 21 | 71,226 |
| Nov 7 ‘08 | 19,852 | 28 | 30,756 | 21 | 18,934 |
| Nov 21 ’08 | –2,193 | 27 | 2,616 | 21 | –2,202 |
| Dec 5 ‘08 | 9,409 | 26 | 35,294 | 22 | 38,334 |
| Dec 19 ‘08 | 2,419 | 25 | -6,081 | 21 | 20,161 |
| Jan 2 ’09 | 14,468 | 24 | 69,956 | 21 | 62,262 |
| Jan 16 ‘09 | -13,837 | 22 | 11,316 | 20 | –7,697 |
| Jan 30 ‘09 | -8,822 | 19 | 38,722 | 19 | 25,560 |
| Feb 13 ‘09 | 10,445 | 20 | 17,172 | 21 | 6,649 |
| Feb 27 ‘09 | 21,307 | 18 | 49,891 | 21 | 15,128 |
| Mar 13 ‘09 | 22,423 | 18 | -3,363 | 21 | -3,819 |
| Mar 27 ’09 | 79,499 | 17 | 9,782 | 20 | -18,124 |
| * At the end of fortnight Source: RBI | |||||
SLR investment slows down
With banks lending more and deposit mobilisation also slowing down, the impact was visible on investments made in instruments eligible for calculation of statutory liquidity ratio (SLR) of banks.
During the last fortnight of March, bank investments in SLR instruments dropped by Rs 18,124 crore to Rs 11,65746 crore.
If the fall in the first half of March is added too, then bank investments in SLR dropped by around Rs 21,950 crore during the entire month, as against a rise of around Rs 21,800 crore in February.
During March 2008, bank investments had declined by Rs 13,790 crore in these instruments.
