The persistent rate hikes by the Reserve Bank of India seem to be taking effect. The non-food bank credit increased by 18.2 per cent for October 2011, as compared with 20.8 per cent in the previous year, according to the sectoral deployment of credit data, released by the RBI. The RBI's projection for credit growth is 18 per cent in the current fiscal.
According to RBI data a slowdown in the pace of credit growth is visible across sectors. Credit to agriculture on a year-on-year basis increased by 7.1 per cent, down from 20.4 per cent in the previous year.
Credit to industry increased by 23.1 per cent (24.8 per cent in the previous year).
Credit to services sector increased by 18.2 per cent, (21.5 per cent) and credit to commercial real estate increased by 12.8 per cent, (1 7.6 per cent).
According to Mr Sudeb Sarbadhikary, CEO, India Factoring and Finance Solutions, interest rates have gone up to such a level where many businesses are willing to forgo borrowing because they are not making adequate returns. The rupee devaluation has also added to the negative sentiments, he added.
Capital formation has come to a halt, as most manufacturing companies are doing only modest brown-field investment. There is practically no large greenfield investments (where a new plant is constructed), said Mr Vimal Bhandari, MD and CEO of Indostar Capital Finance, an NBFC which is into wholesale lending.
“Most of corporate balance-sheets are reasonably underleveraged, with many of them sitting on cash. So, the demand for fresh capital is very limited,” Mr Bhandari pointed out.
The fresh credit growth is broadly happening due to enhanced working capital, which is a result of the high inflation. It has come modestly from the asset financing space. That is primarily due to truck financing because the rural sector is doing well, he added.
Only credit growth to NBFCs increased on a y-o-y basis at 41.5 per cent, (26.1 per cent) and credit to personal loans increased by 14.5 per cent, (12 per cent), said RBI.