The sharp fall in industrial production in November was surprising, given that the outflow of credit from the banking system has been picking up. In fact, the most recent numbers till December 17, 2010, show that bank credit has gone up by a healthy 12.2% in the fiscal year as compared to just 6% in the corresponding period the previous year. And the year on year flows are still healthier, with the credit pushing up by a substantial 23.7%, which is more than double the 11.3% increase in the same period of the previous year.
But these cumulative figures hide the blip in the trends during the month of November. In fact, the trends show that the credit flow from the banking sector had decelerated sharply in November, with the cumulative numbers on the fiscal year growth going up by a mere 1.3 percentage points between October 29 and November 26, which is only about half the 3.1 percentage pick-up in the month of October when industrial growth was a healthy double digit.
However, the more recent trends are quite encouraging, as the offtake of total credit has picked up by 2.3 percentage points in the first fortnight of December, with the non-food credit accounting for most of the increase. But a sustained increase in the credit flows would be difficult, given that the credit flow has been going up faster than the deposits, which has pushed up the credit deposit ratio from 71.6 in end-August to 75.8 by December 19, reflecting the growing liquidity crunch.