Feb 27, 2009

Bank credit declines by Rs 22659 crore in January 2009

12 Feb 2009 | 12:41 Bank credit declines by Rs 22659 crore in January 2009
The total outstanding credit of the scheduled commercial banks (SCBs) in India has declined by 0.9% or Rs 22659 crore from Rs 2658997 crore as of 2nd January 2009 to Rs 2636338 crore as of 30th January 2009. Contrary to market expectations, we find that the bank credit has actually shrunk in January 2009, which is a cause for concern.

We find that between 1st April and 10th October 2008, the bank credit increased by Rs 245491 crore to Rs 2607404 crore. But between 10th October 2008 and 30th January 2009, the incremental bank credit has been only Rs 28933.82 crore.

The shrinkage in credit has lead to deceleration in the pace of credit expansion to 19.3% as at end of January 2009 on y-o-y basis from 24% as at month end December 2008. Meantime, the credit-deposit ratio for the banking system also eased 162 bps to 71.86% as at month end January 2009. The bank credit growth has decelerated sharply to 11.6% in the current fiscal up to 30 January, compared 14.5% in the corresponding period previous year.

The RBI has raised its indicative projection of total flow of credit from the banking sector to the commercial sector to 24% for 2008-09 from 20% envisaged in the Annual Policy Statement. However, in the face sharp moderation in credit growth, it remains to be seen as how upwardly revised credit growth target can be achieved.

The RBI has taken several measures to improve liquidity, expand the credit availability for the productive sector of the economy, to shore up growth and counter the global economic crisis, since mid September 2008. In the process it reduced CRR by 400 bps to 5%, repo rate by 350 bps to 5.5%, reverse repo by 200 bps to 4%, SLR by 100 bps to 24%. It has also instituted various refinance facilities for banks and financial institutions and repurchased MSS bonds. These all measures resulted in augmentation of potential liquidity of over Rs 4.28 lakh crore approximately.

On the other hand, the investment of SCBs into government and other approved securities increased 1.6% or Rs 17807.5 crore to Rs 1166052 crore during January 2009 and by whopping Rs 185135 crore from 10 October 2008 to 30 January 2009. Meantime, the investment to deposit ratio rose to 31.78% as at end January 2009, compared to 28.27% as on 10 October 2008. The SCBs investment growth in the current fiscal up to 30 January stood at 20% matching the growth in the corresponding previous period.

The aggregate deposits of the SCB's surged 1.38% or Rs 50038 crore to Rs 3668801 crore in January 2009. The demand deposits, accounting for 12.6% of the aggregate deposits increased 1% to Rs 463498 crore, while time deposits soared 1.4% to Rs 3205302 crore as on 30 January 2009. However, the aggregate deposits increased by 14.76% in the current fiscal up to 30 January 2009, compared to 18.4% rise recorded in the same period last year.