Banks' credit falls on low farm, corporate demand

MUMBAI (Reuters) - Indian banks' advances shrunk since the start of the current fiscal year as companies hold back new investments in a slowing economy, and a weak monsoon dampened demand for agriculture credit.

As of July 27, banks' credit declined about 6 percent since April 6 to 47,029.7 billion rupees, data from the Reserve Bank of India showed on Wednesday. It fell 0.5 percent from two weeks ago.

Banks are not rolling over unsecured short-term corporate loans that are used by companies to meet working capital needs on concerns over asset quality, which is one of the reasons for the decline in advances, a senior official with a state-run bank said.

"Short-term corporate loans are getting repaid. Also, the acreage under cultivation is less because of insufficient rains, and crop loans are bound to come down when the acreage is less," said the official, who did not want to be named.

He said the monsoon season typically sees lower demand for credit from companies, and it generally picks up after September.

Deposits have increased 2.4 percent to 62,439.6 billion rupees as of July 27 from April 6, the central bank data showed. Deposits have grown 0.4 percent from two weeks ago.

India's factory output likely rose an annual 1.0 percent in June, compared with 2.4 percent in May, according to a Reuters poll.

The country's economic growth slumped to 5.3 percent in the March quarter, its lowest level in nine years, marking a dramatic slide in the fortunes of a country whose economy was boasting nearly double-digit growth before the global recession.

The RBI kept its key repo rate steady at 8 percent despite slowing growth and persistent demand from companies for an interest rate cut on concerns over high inflation.

(Reporting by Shamik Paul; Editing by Gopakumar Warrier)