The Reserve Bank of India (RBI), which will unveil its mid-term review of the monetary policy on Tuesday, is expected to push banks for expanding credit. For, bank credit growth fell to a 12-year low of 10.8% as on October 9, from 29.5% in the same period last year, according to RBI’s latest weekly statistical supplement released on October 23. Even as banks are ready to finance, no one in the corporate sector seems to be complaining against lack of credit. Policy advisors, bankers and company executives point to decreased credit demand as companies try to trim their interest costs and pursue expansion plans slowly. Interestingly, companies are raising funds from non-bank finance sources at the same time.

During April-August 2009, companies raised Rs 1,21,158 crore through corporate bonds and equity issuances, almost three-times the Rs 41,270 crore raised during the same period last year, according to Prime Minister’s Economic Advisory Council (PMEAC) economic outlook for 2009-10. (see chart). Moreover, companies raised an additional Rs 88,000 crore from the mutual funds industry in April-August 2009, up from Rs 38,000 crore in the same period last year, it said. However, bank credit to the commercial sector halved in the same period to Rs 62,275 crore, from Rs 1,37,018 crore. This happened due to a combination of factors including costly credit and lack of demand, said India’s chief statistician Pronab Sen. Rajiv Deep Bajaj, VC & MD, Bajaj Capital Ltd, said credit demand is low because of slowdown in expansion plans, lower working capital demand and recovery in the equity market in the past 6-8 months.

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