Net bank credit to govt up by 47% in 2008-09

The government?s appetite for funds last financial year was voracious, according to the latest RBI data. Net bank credit to the government rose by a staggering 46.5%, or Rs 3,95,330 crore in 2008-09. In comparison, net bank credit to the government in the previous fiscal was up by a mere 5.6%, or Rs 45,632 crore.

Net bank credit includes borrowings from RBI and other banks that participate in government borrowing programmes through auctions. As of March 31, 2009, total bank credit to the government was pegged at Rs 12,46,91 crore.

Given that net bank credit growth to the government stood at just 9.3%, or Rs 83,101 crore, on October 3, it is clear that the expansion was most aggressive in the latter part of the year. The government is set to borrow Rs 2,40,000 crore in the first half of 2009-10 alone, almost double the Rs 1,06,000 crore borrowed in the same period of 2008-09.

RBI data released in its weekly statistical supplement also shows that funds from the central bank to the government went up by Rs 32,845 crore in 2008-09, while it fell by Rs 1,13,209 crore a year earlier. Analysts point out that contributing to the government?s growing appetite for funds were its various stimulus packages to tackle the slowdown in the economy.

?Since September 2008 onwards, banks have started investing more in government securities by cutting down on credit flow to the commercial sector,? confirmed Golak C Nath, vice-president & economic advisor with Clearing Corporation of India (CCIL). Bank credit to the commercial sector stood at Rs 30,09,987 crore as on March 27, 2009, against Rs 25,77,137 crore on March 31, 2008, depicting a growth of just 16.8%. Growth the previous year was 17.1%.

Meanwhile, according to the latest RBI data, credit rose 17.28%, or by Rs 4,08,099 crore, in the 12 months through March 27, while total bank deposits grew by 19.81%, or Rs 6,33,382 crore, in the same period to Rs 38,30,321 crore. Bank loans were up by Rs 79,499 crore in the two weeks ended March 27, taking outstanding advances to Rs 27,70,012 crore.

Foreign exchange reserves were up by $2.83 billion in the week to April 3, due to

FII inflows this week, which also led to an appreciation of the rupee against the dollar. On Thursday, the rupee ended at 50.00/02 against the dollar, its strongest close since February 25.