RBI pares credit, deposit growth target

The Reserve Bank of India (RBI) has lowered the credit growth target for the banking sector for the current year to 16% from 18% targeted in October 2009. Similarly, the deposit growth rate has been reduced to 17% from 18%. With corporates increasingly exploring non-banking sources for their fund requirements, the RBI has scaled back the credit and deposit growth targets for the second time in the current fiscal.

Announcing the third quarter review of the monetary policy 2009-10 on Friday, RBI governor D Subbarao admitted that the earlier projected growth of 18% was not likely to be met. "Accordingly, the indicative adjusted non-food credit growth projection for 2009-10 is now reduced." This comes on the back of the cut in credit off-take target to 18% from 20% during the October 2009 review of the policy.

The non-food bank credit growth rate fell steeply from its peak of 29% registered in October 2008 to a tad over 10% in October 2009. The impact of the slowdown in economic activity also had its effect on demand for funds. However, the situation has improved and the credit growth by mid-January 2010 has risen to the level of 14%.

Based on the projected credit growth, a marginal government market borrowing plan and with a view to manage inflation, the projected money supply (M3) growth in 2009-10 have been reduced to 16.5 % from 17%.

Increased availability of funds from domestic non-banking sources like capital markets, commercial papers and those from external sources like depository receipts and direct investment have resulted in lower credit growth for the banking sector, the central bank has noted. The slow pick-up of the corporate sector credit also saw the numbers move downward.

Preliminary calculations carried out by the RBI indicate that the total flow of funds from banks, domestic non-banking and external sources to the commercial sector during 2009-10 (up to January 15, 2010) was Rs 5,89,000 crore, marginally lower than Rs 5,95,000 crore in the corresponding period of the previous year. The reversal in the credit growth started in November 2009, rising from 10.3% levels in November 2009 to 14.4% as on January 15, 2010.

This pick-up in credit growth has resulted in the persistent decline in the incremental credit-deposit ratio in 2009-10 being reversed.

Credit expansion from public sector banks which had been held up till the quarter ended June 2009, decelerated in the subsequent two quarters. Meanwhile, foreign banks, on an incremental basis, have seen a negative credit flow of 9.7% as on January 15, 2010. This is against a growth of 13.4% recorded in the corresponding period of the previous year.

The outstanding incremental credit amount has dipped by Rs 16,720 crore till January 15, 2010, against an addition of Rs 20,374 crore during the period. However, the incremental credit growth for private sector banks at Rs 47,940 crore has improved to around 9.8% from 8.9% recorded during the year-ago period. For the public sector banks, the incremental credit off stands at Rs 3,22,500 crore.

Even as non-food credit decelerated, data on sectoral deployment of gross bank credit indicates that the credit flow to agriculture remained strong despite a deficient monsoon.

The expansion of incremental non food credit to the industry was led by infrastructure, iron and steel industries. However, personal loans witnessed deceleration in credit flow. Within this category, housing loans also witnessed moderation, the RBI report said.

Exposures for credit card and consumer durables are down by 24.7% and 11.8%, respectively. However, education and housing loans have witnessed an improvement and were up 31% and 7.3%, respectively, as on November 20, 2009.

Within aggregate deposits, time deposits registered a growth of 16% as on January 15, 2010, compared with 23.1% a year ago, thanks to softening of rates and a shift towards demand deposits. Demand deposits expanded by 19.8% as on January 15, 2010, compared with a decline of 0.8 % a year ago.

There were net outflows from small savings schemes between December 2007 and July 2009. But, moderate inflows were recorded during August-November 2009. Growth in currency with the public at 17.3 % (y-o-y) as on January 15, 2010, remained almost the same compared with the year-ago period.