Non-food credit grew at the fastest pace in over a year at 18.40% year-on-year to R55,11,822 crore for the fortnight ended on September 6, latest figures from the RBI showed. The last time credit growth was above 18% was in June, 2012.
Credit growth has been steadily rising over the last three fortnights and has stayed above 16% as the liquidity crunch in the market has pushed companies to borrow funds from the banks instead of raising funds through non-convertible debentures (NCD) and commercial paper (CP).
“Since companies are not be able to tap funds through CP and NCD markets, due to tight liquidity conditions, they are lining up to banks for more credit. Besides that oil and fertilizer companies are taking short-term funds from banks due to delays in subsidies to them by the government,” M Narendra, CMD, Indian Overseas Bank, said.
RBI had announced liquidity tightening measures to stem the slide in the rupee in mid-July, which has led to the drying up of liquidity in the market.
Meanwhile, for the fortnight ended September 6, deposits growth continued to be anemic and stood at R71,73,720 crore growing about 13.37% y-o-y from R63,27,482 crore, according to the latest RBI data. Demand deposits grew 11.20% to R6,54,810 crore from R5,88,812 crore a year ago and time deposits grew 13.60% to R65,18,911 crore from R57,38,670 crore a year ago.
Time deposits are those which are locked in with the bank for a fixed tenure and banks pay a higher interest rate on them than demand deposits, which can be withdrawn anytime.
For FY14, the RBI has projected credit growth of 15% and deposit growth of 14%.
The widening gap between credit and deposit growth is one reason for the increased bank borrowings from the Reserve Bank of India’s Marginal Standing Facility (MSF) window, which surged to over R1 lakh crore last week. Advance tax outgo has also added to liquidity pressures in recent days.