The Hindu Business Line : Bank credit up 3.7 pc in last fortnight of 2005-06

Gross bank credit touched Rs 14,96,474 crore for the financial year 2005-06, with an increase of Rs 53,883 crore in the last fortnight of the fiscal alone. This represents an increase of 3.7 per cent over Rs 14,42,591 crore in the fortnight ending March 17, 2006.

According to the Reserve Bank of India's Weekly Statistical Supplement for the quarter ended March 31, 2006, food credit, dropped by Rs 38 crore to Rs 41,787 crore and non-food credit rose by Rs 53,921 crore to touch Rs 14,54,687 crore.

For the full year, bank credit has increased by almost 30 per cent from Rs 11,52,210 crore in 2004-05. Banks have seen a huge credit growth in 2005-06, fuelled by the economy growing at a rate of over 7.5 per cent and huge investments in sectors such as infrastructure, retail and agriculture; and capital expansion by companies. Companies raised loans to meet domestic growth and overseas expansion.

Aggregate deposit for the fortnight ended March 31, 2006 also surged by Rs 83,895 crore to touch Rs 20,87,670 crore, against Rs 20,03,775 crore in the previous fortnight.

Balance sheet shoring up

According to a public sector bank official, the increase in lending by banks during the period in consideration is mainly because they want to shore up their balance sheets before the fiscal comes to an end.

Banks do a lot of short-term lending in the last minute to show better balance sheet. Many banks also give a large number of MIBOR-related loans. This not only helps in increasing the balance sheet size, but also helps in reducing the percentage of non-performing assets to total assets, the official said.

Another reason could be the loans sanctioned to oil companies, which are being utilised now. "Oil companies have a lot of appetite for funds. It is possible that their loan limits were not fully utilised until now," the official said.

It is estimated that most banks would report a growth of around 30 cent in their loan portfolios for 2005-06. However, deposits are likely to grow by 17 per cent. Most banks have raised deposit rates in addition to borrowing from the RBI to raise resources to meet the increased demand for funds.

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Bank credit up 3.7 pc in last fortnight of 2005-06