For the first time since the financial crisis intensified, overall flow of funds to the commercial sector has gone up.
Overall flow jumped 16.4 per cent mainly due to higher availability of resources from non-banking sources such as commercial papers (CPs) and equity fund raising.
During the same time, bank credit went up by 16 per cent, as firms used non-banking financial sources to raise funds.
According to the latest Macroeconomic and Monetary Development Report by the Reserve Bank of India (RBI), the flow of funds from non-banking sources went up by 20.36 per cent during 2009-10. The increase was mainly driven by domestic sources such as issuances of CPs, private placements and initial public offerings (IPOs) as well as foreign sources such as American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and foreign direct investment (FDI).
As a result of the revival in the second half of the financial year, the share of adjusted non-bank food credit in the overall resource flow to the commercial sector increased by 12.52 per cent during 2009-10. For April-March 2009-10, the share of non-food credit in overall resources to the commercial sector was also around 12 per cent.
While banks saw the real demand for credit picking up only in the fourth quarter of the last financial year, companies used the CP route to meet their short-term credit requirement. Net issuances went up by 289 per cent to Rs 41,667 crore in the last financial year as against Rs 10,718 crore in 2008-09. Total credit flow from RBI-regulated financial institutions such as Sidbi, NHB, Nabard and EXIM Bank fell 20 per cent in the last financial year. Net credit by housing financial companies fell 8.94 per cent.
Since the largest insurer, Life Insurance Corporation of India, increased its investment in public issues and invested over Rs 60,000 crore in equity markets in 2009-10, its exposure to the corporate sector, infrastructure and social sector came down as its investment in these sectors fell by 37.17 per cent during the last financial year.
Due to the impact of the global economic slowdown, borrowing from overseas market fell by 64 per cent during the last financial year. At the same time, the flow from systematically important non-banking finance companies increased by 32 per cent.
Funds from foreign sources in the form of foreign direct investments and issuance of ADRs, GDRs improved during the year and rose by 10 per cent and 213 per cent, respectively.
As a result of low demand for bank credit by the commercial sector, banks parked surplus funds with mutual funds. At the end of February, banks had invested Rs 261,055 crore in these instruments against Rs 30,214 crore a year ago. Banks earn around 4 per cent by parking funds with mutual funds.
