With industrial growth slowing down, the pace of credit offtake from banks has also decelerated. Non-food credit, or money lent by banks, to companies and individuals grew at 20.56% year-on-year to R39,06,440 crore in the fortnight ended at June 3, 2011, according to the Reserve Bank of India (RBI). The increase of R20,883 crore is a shade lower than the 22.1% rise in credit reported for the fortnight ended May 20, 2011.

Despite interest rates remaining at elevated levels, bankers believe credit would grow above RBI?s projection of 19% for 2011-12. ?The credit offtake is in line with expectations and projects are more or less on schedule,? said MD Mallya, CMD, Bank of Baroda, adding that the momentum should sustain with customers drawing down the amounts sanctioned. However, Mallya pointed out it is possible that with interest rates high, too many new projects may not take off immediately.

M Narendra, CMD, Indian Overseas Bank, said, ?Demand for money continues to be fairly strong in sectors like manufacturing, services and infrastructure. We may end the year with a growth in credit that is higher than what RBI projected.?

The narrowing of the gap between the growth rates of credit and deposits would be welcomed by the central bank. RBI has been concerned about excessive lending by some banks at a time when the growth in deposits was sluggish at around 16%. It has exacerbated liquidity situation. While announcing the monetary policy in late January, RBI governor Duvvuri Subbarao had observed that credit growth needed to moderate to conform broadly to the indicative projections since that would prevent a further build-up of demand side pressures. Subbarao had said RBI would watch the situation and engage with banks demonstrating credit?deposit ratios which were out of line.