21 Month Low Credit Growthat 2011 End

21 Month Low Credit Growthat 2011 End

According to data released by Reserve Bank of India, the growth in bank advances has fallen to a figure, which is lowest in the last 21 months. The major reasons for this capped credit off take are high lending rates coupled with slowdown in fresh investments, and an uncertain economic environment.

As on December 16, bank advances have grown to 17.08% annually, which is the lowest growth rate since March 2010. Credit growth has been below the projections of 18%, which were made by the central bank in the last two months. Leading consulting firm Deloitte has commented, “People have postponed investment decisions due to the growing uncertainty in growth prospects. To keep up with the high rate of inflation, RBI had raised the policy rates by 375 basis points thirteen times since March 2010, which took its toll on the credit off take as other banks increased their lending rates by around 250 basis points during the same period.” The firm believes the situation may improve in the coming year. “There could be higher credit off take in the fourth quarter in case the interest rates stabilise. This would happen only if the RBI does not change its policy rates during this period.”

Recent data on industrial production has shown that credit growth fell by 5.1% in October. A senior economist says that companies don’t foresee increase in demand for the next couple of quarters, and this has impacted their capital expenditure plans. It is also being expectedthat credit growth may be lower than the RBI projection of 18%. In fact it is expected to hover in the range of 16% till July. Earlier RBI had scaled down the credit growth projection for 2011 end from 19% to 18% in its second quarter monetary policy review.