The Hindu Business Line : Sharp rise in bank loan growth

Chennai, Nov. 2 GDP growth may be slowing down but strangely, bank loans have grown at an explosive pace during the last quarter. According to figures put out in the weekly statistical supplement of the Reserve Bank of India, banks have lent about Rs 2 lakh crore just during the past six fortnights up to October 10. (See table)

Comparatively, their lending in the first quarter was just a pale shadow of what they did recently — a paltry Rs 46,666 crore!

Ask bankers about who is getting the money and the answer is seldom illuminating and mostly vague.

One explanation offered for this kind of loan growth is that oil and airline companies may have been utilising a lot of bank credit. Given the losses being suffered by both these sectors, that is a partially acceptable explanation.

According to disaggregated RBI statistics available up to end-August, there has been strong growth in credit to oil, infrastructure, construction and iron & steel sectors. Relatively, there was a drop in credit flow to the textiles, transport equipment and vehicles sector, and food processing industries.

The macro numbers indicate that credit has grown by about 29 per cent year-on- year.

Yet, the voices heard among industry leaders would make you believe that they were not getting any money and that there was some kind of liquidity squeeze. There were reports that banks were not releasing even the earlier sanctioned amounts. Of course, one also heard the contrary version — of some savvy corporates drawing on their unused credit limits and reinvesting them in high-yielding bank deposits. A case of banks lending, at anywhere between 10 and 12 per cent, and borrowing from these very same corporates for short periods at anywhere between 13 and 15 per cent!

Bizarre behaviour

The only logical explanation for this bizarre behaviour is that banks were in the race to mop up money during the last quarter in the wake of global credit crisis and lack of confidence in counter parties. Call rates had shot up and banks took regular recourse to borrowing in the repo window of the RBI.

Hopefully, the instances given above were few and far between. The measures announced on Saturday may help moderate banks’ enthusiasm for tapping high cost funds. And these will also come in handy to help banks lend during their traditionally busier season that is on now.

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