Bank credit grows 14.65% y-o-y in fortnight ended May 17

Moneycontrol Bureau

The non-food credit or the amount commercial banks lend to individuals and companies expanded 14.65 percent year-on-year to around Rs 52.10 lakh crore in the fortnight ended May 17, 2013. During fortnight starting from May 3, lenders however, could not add additional credit and the growth fell marginally by Rs 14,500 crore, according to the latest data released by the Reserve Bank of India (RBI) on Wednesday.

The central bank had projected 15 percent growth in the industry non-food credit and 14 percent in deposits for 2013-14.

"There is no sign of capex expansion among companies. Banks are mostly giving working capital loans. Unless companies start expanding and lenders extend long term loans, the current scenario will not be changed," said Deep N Mukherjee, director (corporate) at India Ratings adding that even if RBI cuts rates by 100 bps, corporates may expect at best 25 bps to 50 bps reduction. Economic recovery is still a long wait.

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Typically, lending activities slow down at the beginning of any financial year. In banking parlance, it is called lean season – between April and September. Since April 06, the incremental credit growth remains muted, just up 0.30 percent.

Bruised by credit quality stress, many banks are now deliberately contracting their book. Rather, they are focusing on retail credit seeking safety of asset quality. Retail borrowers are seen relatively safer bet. Rate of defaults are much less when compared with corporate loans.

So far in 2013, the RBI has slashed 75 basis points in the policy or repo rate, at which banks borrow from the central bank. However, banks are yet to reduce rates transmitting the policy action.

During the same fortnight deposits grew by 13 percent year-on-year to Rs 68.74 lakh crore. However, banks could not mop up additional deposits during the 15-day period. Deposits fell marginally by around 14 crore between May 3 - 17, 2013.