The Hindu Business Line : ‘Credit growth moderate, within RBI’s projection’

Mumbai, April 28 Expansion in bank credit to the commercial sector moderated during 2007-08 and remained within the Reserve Bank of India’s policy projection in April 2007, after a strong pace of credit expansion for three consecutive years. Non-food credit by scheduled commercial banks (SCBs) expanded by 22.3 per cent, year-on-year, as at end March 2008, as compared with 28.5 per cent a year ago. This is within the RBI’s projection of 24-25 per cent.

Accretion to bank deposits, led by time deposits, remained buoyant. Growth in demand deposits, year-on-year, as at end-March 2008, was higher at 19.2 per cent than 17.1 per cent a year ago.

Growth in time deposits was 2.16 per cent, against 23.5 per cent a year ago. The strong growth in time deposits could be attributed to robust economic activity, higher interest rates on bank deposits relative to postal deposits and extension of tax benefits under Section 80C for bank deposits.

The deceleration in credit growth relative to the acceleration in deposit growth led to a decline in the incremental credit-deposit ratio of SCBs to 17.9 per cent as at end March 2008, from 84.3 per cent a year ago.

According to RBI report, the infrastructure sector alone accounted for around 33 per cent of incremental non-food bank credit, as compared to 21 per cent last year. But share of the agricultural sector fell to 9 per cent from 12 per cent.

Interest rate movement

While the deposit rates offered by SCBs softened, particularly at the longer end of the maturities during 2007-08, there was slight increase in the lending rates.

The benchmark prime lending rates of PSBs were between 12.25-13.50 per cent (12.25-12.75 per cent) and those of and private sector banks were between 13-16.50 per cent, on March 2008 (12-16.50 per cent)

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