RBI, in its first quarter review of the monetary policy 2010-11 on Tuesday, said year-on-year non-food credit growth accelerated from 17.1% in March 2010 to 22.3% as on July 2, 2010, which was higher than the indicative trajectory of 20% set out in the earlier policy in April.
This reflects the combined impact of a pick-up in industrial activity and financing of the 3G and broadband wireless access (BWA) spectrum auctions. OP Bhatt, chairman, State Bank of India, said the banking industry has recorded a healthy credit offtake and going forward, it will pick up further.
Chanda Kochhar, MD & CEO, ICICI Bank, said there has been credit off-take but it has to become more broad based. Moreover, some project loans sanctioned by most banks would further create credit expansion due to their disbursements, said Kochhar.
Aditya Puri, MD & CEO, HDFC Bank said the bank has seen good growth in corporate sector. The corporate sector has grown must faster than retail from our bank. We definitely expect higher growth in the July-September quarter, compared to the previous quarter, he said.
MV Nair, chairman & managing director said that credit growth will exceed 21% during the current fiscal but the liquidity crunch will be an area of concern. According to the central bank, the increase in bank credit to the commercial sector has also been supplemented by higher flow of funds from other sources.
Rough estimates show the total flow of financial resources from banks, non-banks and external sources to the commercial sector during the quarter ended June 30 stood at Rs 2,50,000 crore, against Rs 61,000 crore during the corresponding period of the last fiscal.
Disaggregated data suggests that credit growth to all major sectors such as agriculture, industry, services and personal loans began to improve from November 2009 onwards, said RBI.
However, Abizer Diwanji, head, financial services, KPMG India, said given the fact that M3 growth stands at 15.2% against a credit growth of 22%, there is an element of demand side inflation in the system. To stem this, RBI has incentivised banks by increasing reverse repo rates by 50 basis points. This would result in lower credit outflow to a projected 20% and increase M3 to 17% by the end of the fiscal year.