The Hindu Business Line : Bank credit up at Rs 22,344 cr

OVERALL bank credit grew by Rs 22,344 crore during the week up to March 26, the Reserve Bank of India said in its Weekly Statistical Supplement. In comparison, gross bank credit had risen by Rs 16,253 crore during the fortnight ended March 19.

The reasons for this rise in gross credit are rather fuzzy in that while some bankers do believe that industries are borrowing more money, a broad consensus is elusive. And, fact remains that corporates have been borrowing less than previous years because of better cash flow and a bullish equity market.

"If there was really industrial offtake, why are the yields in the domestic debt market still softening? Shouldn't the interest rates then start to harden?" an analyst with a foreign bank wondered.

Ten-year yields have fallen well below 5.5 per cent. Interest rates are at record lows with banks doling out housing loans at rates as low as 7.5 per cent and personal loans at even 11 per cent. Yet companies are borrowing less.

According to an `India Strategy' report of March 29 prepared by foreign broking firm Morgan Stanley, the absolute debt level of corporate India dropped in fiscal year 2003. It said even before the fall in debt stock, the corporate sector's debt-equity ratio had been on a broad-based decline.

The report titled `What's the deal with debt' says that after having doubled in the preceding eight years, the aggregate debt stock fell 8 per cent in fiscal 2003 for India's largest 200 companies. It adds that even though debt is now the cheapest ever and overall balance sheet leverage at an all-time low, and even though purely on the basis of cost debt is more attractive than equity, corporates are currently issuing equity rather than debt. "The reason has to be that corporates do not see productive use for capital in the immediate future," it says.

Perhaps that may explain the lower level of credit outstanding compared to the previous financial year. According to the RBI, non-food credit outstanding on March 26 was only Rs 1.23 lakh crore compared to Rs 1.42 lakh crore in the previous year.

An analyst recently told Business Line that short-term borrowing by corporates may be propping the aggregate numbers towards the year-end. "Most banks want to prop up their advances. In a scenario where there is hardly any corporate credit offtake, the customer is king and can dictate terms. In many cases they borrow for short durations, like 3-6 months, etc. This money finds its way back into the system and gets reflected in the figures," admitted a banker.