Year on year basis, the rise in non-food credit as on the last reporting Friday of December 1998 was 15.7 per cent as against 11.4 per cent registered during the corresponding period of the preceding year.

Furthermore, taking into account total accommodation provided by scheduled commercial banks to the commercial sector including investments in shares, debentures bonds and commercialpaper etc., total financial assistance increased by Rs 22,379 from Rs 344,907 crore as on the last reporting Friday of March 1998 to Rs 367,286 crore as on the last reporting Friday of December 1998.

It is pertinent to note that gauged from the credit deposit ratio, the share of the commercial sector was 49.85 per cent as on the last reporting Friday of December 1998. However, taking into account total accommodation provided by the banking system to the commercial sector, the ratio registered an improvement to 54.2 per cent.

Thus, instead of CD ratio, a new concept of financial assistance deposit (FAD) ratio may be evolved to correctly measure the total financial assistance from banking system to the commercial sector. Incidentally the financial assistant to deposit ratio has declined from 57.0 per cent as on the last reporting Friday of March 1998 to 54.2 per cent as on the last reporting Friday of December 1998. As a result investment deposit ratio increased from 35.93 per cent as on the last reportingFriday of March 1998 to 36.99 per cent as on the last reporting Friday of December 1998 as against statutory requirement of 25 per cent.

The declining FAD ratio indicates that incremental deposits have not been proportionately deployed in financing of commercial sector. This is mainly because the risk free and cost effective investment in government papers particularly in dated securities with average 12.01 per cent coupon rate is considered as an attractive proposition as compared to loans involving higher transaction cost, credit risk and tight prudential norms, at 12.75 to 13.00 per cent prime lending rate (PLR) even with maximum spread of 3 to 4 per cent.

Incidentally, cut of yield on 91 day Treasury bills was 2-4 percentage points lower than effective discount rate on CP for 91 day in 1997-98. This indicates that at the shorter end of the maturity spectrum there is a risk premium associated with financing of commercial sector but same is not true in the case of loans versus dated securities. In viewof the increased penchant for investment in government securities it may be considered necessary to dovetail coupon rate on government securities with average PLR of five major banks and keep the coupon rate at least 2 to 3 percentage points below PLR to provide level playing field and curb crowding out phenomenon.

Nonetheless, the steadily rising growth of non-food credit is more than welcome feature in the otherwise wobbly industrial scenario. In some quarters, this development is regarded as a beginning of revival of industrial growth. Undoubtedly, the credit is a lubricant for the engine of industrial growth as if, it galvanizes the production process.

However, there is not a very convincing evidence of positive relationship between bank assistance and industrial growth. It is pertinent to note that in a period of last four years, in the year 1995-96 despite steep fall in growth rate of bank credit, industrial growth recorded a substantial improvement, while in the remaining three years therelationship was somewhat feeble between bank credit and industrial growth recorded a substantial improvement, while in the remaining three years the relationship was somewhat feeble between bank credit and industrial growth.

Furthermore, data relating to industry-wise growth rate and credit offtake readily available in Annual Report of Reserve Bank for the year 1997-98 for 13 industries, which reveal that as many as in the case of seven industries, despite deceleration in output, credit takeoff had increased substantially during the year 1997-98.

This suggests that instead of financing of inputs, bank funds, might have been used for financing of inventory particularly of finished goods or credit sale (receivables) or retirement of loans particularly external liabilities like ECB etc. In this backdrop spurt in bank credit per se may or may not bring about industrial growth.

In addition to bank finance there are a number of formal and informal sources for financing of the commercial sector. Importantamong these are capital issues, euro issues and term lending institutions. In the first half of the current year March 1998 to September 1998, new capital issues by non-government public limited companies amounted to Rs 3,248 crore as against Rs 1,691 crore during the corresponding period of the previous year.

This indicates almost cent per cent rise in the resources mobilised in the primary market. The average amount per issue worked out to Rs 129.7 crore during the current year as against Rs 28.9 crore during the same period of the previous year. Further, amount raised through right issues constituted 69.7 per cent in the current year as against 55.0 per cent in the previous year.

This implies that securities & Exchange Board of India's (Sebi) regulatory controls on the primary market have been increasingly effective and the menace of fly by the night promoters has been arrested. In short, during the current year primary market registered not only quantitative improvements but qualitative as well. Thesehealthy developments will have the salutary impact on the offtake of bank finance.

The commercial sector also heavily depends on informal sector for financing. However precise information is not available but it seems to be sizeable. A total combination of all these sources would form a correct picture of financing of commercial sector rather than taking an isolated view of bank finance alone.

Besides, financial assistance, rate of industrial growth depends on a variety of other factors like aggregate demand, export growth and industrial relations. As situation on industrial relations and financial resources is quite comfortable, industrial output will be largely determined by aggregate demand, particularly in agriculture and service sectors and export performance during the ensuing period. Fortunately, agricultural and service sectors are expected to perform well during the current year. This may wake up the latent demand at least in the next year and that may pave the way for the industrialrevival.