Aggregate bank loan growth slowed to an extent that the Reserve Bank of India may be comfortable as companies cut back on demand for funds due to high interest rates.
Banks' non-food credit rose 18% year-on-year in early November, said the Reserve Bank.
According to the latest loans data released by RBI, non-food credit to corporates and individuals touched 41 lakh crore as on November 4, 2011, up 21,412 crore over the previous fortnight. This amounts to 18% growth over the previous year's.
Even though the current level of loan growth is still within the central bank's comfort zone, the current pace of loan growth is lower than last year's levels. Total loans rose 22% in the same period a year ago.
"Project finance is weak. Incremental activity is very low and this could be worrisome from next year," said Srinivasan Varadarajan, executive director-corporate banking, Axis Bank.
The latest Reserve Bank data on sectoral break-up of bank loans during the first half of FY12 indicates that loans to the manufacturing sector as such is just a little higher over the previous year's levels.
Much of the loan growth during the first half this fiscal is driven by retail loans, particularly home loans and other personal loans. Besides, banks have lent almost 46% higher to the NBFC sector and the commercial real estate sector this year.
One of the reasons for slower growth in credit offtake is that corporates have taken advantage of cheaper interest rates abroad and gone for overseas borrowings.
"Increasingly, a lot of mid-sized corporates are converting their rupee-denominated terms loans to dollar denominated loans, said Ashish Gupta, GM, corporate finance of Rico Auto Industries. Besides, a number of larger firms with a triple rating too have raised funds abroad.
Deposits on the other hand rose 35,120 crore during the fortnight to 56.54 lakh crore as on November 4. While demand deposits dipped 2,156 crore, term deposits rose 37,277 crore. This works out to an annual growth of 17.5% over the previous year's levels.
With most term deposits yielding higher returns than that offered by various small savings scheme, many savers are now moving to banks from small savings schemes. Besides, uncertainty in stock markets too has made bank deposits an attractive option.
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