Loan growth in the banking system is faltering as borrowers shift to market funding and due to tapering-off of window dressing that boosted numbers at the end of the quarter last month.
Banks loaned Rs 7,133 crore in the fortnight ended October 22, down from 46,000 crore lent in the preceding fortnight. Banks follow unconventional methods to show higher loan numbers during the quarter end that’s a formal record to measure their performance against targets.
Bank loans used to be one of the key gauges in the past to measure economic activity, but that is becoming less reliable as alternative sources of funding such as share of bonds and overseas loans for corporates increase.
Rough estimates showed that the total flow of financial resources from banks, non-banks and external sources to the commercial sector during the first half of 2010-11 was higher at Rs 4,85,000 crore, up from Rs 3,29,000 crore during the same period of the previous year.
If the slow pace of loan growth continues, the central bank’s estimates of 20% this year may have to be cut for the second straight year.
Last year, RBI lowered the credit growth projection twice, first from 22% to 20% and then to 18%.
The data released in central bank’s weekly statistical supplement shows that the year-to-date (between April 1 and October 22) credit growth was at 7.2% while that year-on year (YoY) was 21%.
Most bankers believe that the third quarter will be crucial to achieve the target as a busy season will kick in when most corporates borrow for expansion while individuals borrow during the festival season.
In absolute terms, credit stood at Rs 34,76,133 crore on October 22, which is an increase of Rs 2,35,734 crore from end March.
Deposits rose 17.3% on a year-on year basis to Rs 48,75,254 crore as on October 22, up Rs 86,945 crore over the previous fortnight. The spurt in deposits is largely on account of money deposited by investors for the public issue of Coal India, which opened on October 18 and closed on October 21. The issue received record subscription of Rs 2.25 lakh crore. The year-to-date deposit growth stood at 8.6%, or Rs 3,88,680 crore.
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