Slipping well below the target of 20 per cent for 2009-10, growth in bank credit dipped below 10 per cent to 9.65 per cent during the period ended October 23, 2009. Credit offtake was growing at over 29 per cent during the same period last year.

As per Reserve Bank of India (RBI) data released on Wednesday, total bank credit has gone up at a slower rate to Rs 28,68,565 crore from Rs 26,15,980 crore on October 24 last year. However, deposits showed a higher growth of 19.02 per cent during the period.

Several factors have contributed to the slowdown in non-food bank credit. The overall credit demand from the manufacturing sector slowed down, reflecting a decline in commodity prices and drawdown of inventories. Corporates were able to access non-bank domestic sources of funds and external financing “which had almost dried up during the crisis” at lower costs.

Unlike in the previous year, oil marketing companies reduced their borrowings from the banking sector as oil prices moderated. A significant amount of bank finance has gone to the corporate sector through banks’ investment in units of mutual funds.

Banks have also reined in credit to the retail sector due to the perceived increased risk on account of the general slowdown. “This credit retrenchment was more pronounced in the case of foreign banks and private banks. This is evident from bank group-wise analysis, which shows that credit from private banks slowed down sharply, while that from foreign banks actually contracted. Thus, despite ample liquidity in the system, non-food bank credit expansion slowed down,” the RBI explained.

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