Credit offtake drops as new quarter begins

It's the usual story of window dressing. The credit growth of banks for the fortnight ended June 25 was Rs 10,174 crore. But the next fortnight ending July 9 witnessed a credit growth of Rs 4,904 crore.

So it is clear that the dramatic rise in the credit in the last fortnight of the first quarter of the financial year testifies the usual practice of inflating credit figure.

Banks' investment kitty has grown by Rs 13,593 crore in the fortnight ending June 9 against a mere Rs 555 crore for the fortnight ended June 25.

Banking sector analysts said the debate over credit growth may not be taken seriously as the growth is not sustained. The non-food credit, in fact, has fallen marginally over the last fortnight.

On the other hand, investments are seeing a spurt with major contribution from investment in government securities to the tune of Rs 10,717 crore.

As per the weekly statistical supplement released on July 24, while the investment deposit ratio has gone up from 45.99 for June 25 to 46.60 in July 9, the credit deposit ratio remained unchanged at 56.25 even if the rise in aggregate deposits have fallen from Rs 10,637 crore to Rs 8,739 crore. Meanwhile, the rising inflation has resulted in a rise in the money supply from 14.8 per cent to 15.3 per cent.

The rise in money supply is contributed by a substantial growth in other deposits with the Reserve Bank of India, which saw a fortnightly growth of 27 per cent.

This suggests that most of the banks are putting money with RBI under the reserve requirements and in repo bids of the central bank under the liquidity adjustment facility, said bankers.

They added that the rising inflation is also a fallout of the ways and means advances drawn by the centre week over week.

According to banking analysts, while the shift from credit to investments is evident, it is only natural for the banks to hold the surplus funds in government securities. Public sector banks are of the view that credit portfolio has not seen much increase in the first quarter.

According to sources, the increased provisional figures, which have been submitted to RBI, are mainly on account of the retail lending base of private sector banks.

Banks in general have been investing either in cash or holding on to their government security portfolio. This is because with rising yields on government securities, any sale will result in notional loss in the portfolio which has to be provided for.

Moreover, banks are also required to put capital charge on the market risk based on Basle II norms.