Credit offtake crashes

MUMBAI: After growing their loan books by over Rs 80,000 crore in December, banks have slowed down in January, with loans growing by only Rs 14,289 crore.

According to the latest Reserve Bank of India (RBI) figures released in its weekly statistical supplement (WSS), loans extended by commercial banks rose Rs 14,289 crore in January to Rs 17,80,632 crore as against a growth of Rs 82,614 crore in December. While food credit dipped Rs 90 crore, non-food credit rise Rs 14,379 crore during the month.

One reason for the slowdown could be the common practice among banks to indulge in window-dressing and bloat-business figures during the quarter-end period for banks. As a result, the subsequent month figures tend to drop. However, this time round, the growth has dipped sharply.

The trend in credit offtake partly reflects the slowdown in demand on account of a hike in their lending rates by banks. Many banks have gone slow on sub-PLR lending which worked out cost-effective for many corporates.

Besides, some banks are also seeing a slowdown in retail loans. In the current financial year, banks have hiked lending rates more than once. The regulator has also hiked the risk weight assigned to home loans, requiring them to set aside more capital. This has made home loan lending unattractive for banks. Despite the slowdown in credit offtake, the annual (Y-o-Y) growth in credit is still almost close to 30% as against the projected growth of around 25%.

Deposit growth, on the other hand, has been slightly better with banks mobilising a total of Rs 16,417 crore, they have chosen to park more funds in gilts during the month. While demand deposits dipped Rs 14,029 crore, term deposits rose Rs 30,446 crore. Many banks hiked their deposit rates in January.

Interestingly, there is a change in the business mix adopted by banks this time round. In sharp contrast to the trend in the previous month, bank investment in gilts rose Rs 11,977 crore in January as against a dip of Rs 20,306 crore in December.

Meanwhile, strong capital inflows have helped foreign exchange reserves cross $180 billion during the week ended February 2. According to RBI, foreign exchange reserves, including gold and SDR, rose $1billion ($995 million) during the week ended February 2 to $180.05 billion. While foreign exchange reserves rose $981 million, the value of gold in reserves rose $12 million. Reserve tranche position in IMF rose $2 million.

India, at the current level, is the fifth largest holder of foreign exchange reserves, among emerging market economies after China, Korea, Taiwan and Russia. In most of these economies, the reserve pile-up is driven by current account surpluses like net export earnings and remittance. But, in India, it is largely on capital inflows that are volatile.