The Hindu Business Line : Slowdown in banks’ non-food credit growth

Mumbai, Feb. 8 The growth in non-food bank credit has shown a slowdown in the recent past, illustrating RBI’s concern that banks have not expanded credit despite comfortable liquidity conditions.

The outstanding amount of non-food credit as on January 25, 2008 was at Rs 21,42,494 crore, an increase of Rs 37,259 crore against Rs 21,05,235 crore as on January 4, while the growth was higher at Rs 53,050 crore during the December-January period, according to the weekly figures released by RBI.

The amount outstanding as on December 7, 2007 was Rs 20,52,191 crore.

In its latest review of the monetary policy, the RBI had noted that despite comfortable liquidity conditions, banks have not expanded credit, preferring instead to make excess investments in SLR (statutory liquidity ratio) securities including MSS (market stabilisation scheme) issuances.

A senior official at a leading public sector bank said that while the credit offtake in the fourth quarter is usually a bit better, this time credit growth is slightly lower. “Industrial production figures also indicate a slowdown. Credit offtake is another area where it is visible,” he said.

Due to the recession in the US there could be a slight slowdown in India. Capacity utilisation could come down as international orders decrease, he added.

According to the latest review of monetary policy, the non-food credit by commercial banks increased by only 22 per cent to Rs 3,82,155 crore as on January 4, 2008, as against 31.9 per cent to Rs 4,16,418 crore in the year-ago period.

According to the provisional figures released by RBI, as on November 2007, credit to industrial sector registered the highest growth of 25 per cent, followed by credit to agriculture sector by 21.4 per cent, service sector 20.8 per cent and personal loans 20 per cent.

Mr Susheel Narain Kak, Executive Vice-President and Chief Credit and Risk Officer, Development Credit Bank, said that banks were going slow in the retail loan sector as there has been an increase in delinquency. “The retail sector is not growing at the same pace which was seen earlier,” he said.

Credit to the real estate sector recorded a growth of 33 per cent, although such loans accounted for only 2.6 per cent of the total credit.

Forex Reserves

The country’s forex kitty swelled by $4.356 billion at $292.672 billion for the week ended February 1 on the back of constant intervention by the RBI in the forex market. The reserves had increased by $3.418 billion to touch $288.316 billion for the week ended January 25, according to the weekly statistical supplement released by the Reserve Bank of India.

“The RBI has been buying dollars in order to cap the appreciation of the rupee. There has also been some revaluation of currency assets which has attributed to the increase in reserves,” said Mr Navin Raghuvanshi, Associate Vice-President, Treasury and Financial Institutions Group, Development Credit Bank.

The foreign currency assets increased by $3.496 billion at $283.041 billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-US currencies (euro, sterling and yen) held in reserves.

The country’s reserves in gold went up by $871 million at $9.199 billion, while that in SDRs remained unchanged at $9 million. The reserves in IMF decreased by $11 million at $423 million.

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