With bank credit disbursement barely touching 10%, concerns are now being raised whether banks will be able to meet RBI?s target of 16% by the end of the current financial year. To achieve the target, all scheduled banks, including regional rural banks, will now have to lend around Rs 30,000 crore every week. But RBI data for the fortnight ended February 12 show that banks disbursed only Rs 22,597 crore, a marginal improvement from Rs 20,170 crore disbursed in the fortnight ended January 29, 2010.
The Economic Survey, in a gentle frown on the banking sector for its failure to bring down interest rates, has underlined the fact that the increase in flow of funds from non-banking sources from both domestic and foreign sources to companies indicates structural rigidities that affected monetary transmission mechanism. In fact, anecdotal evidence suggests that non-banking sources like commercial papers and initial public offerings account for about 60% of India Inc?s fund requirements. Ideally, it should not be more than 40% for companies to remain competitive in the long run.
Even retail credit remains muted with the personal loans category showing negative variation for sub-categories like advances against fixed deposits, credit card outstanding and consumer durables. Any rollback of stimulus packages will have to take into account the negative variations.
Low credit offtake will have a far-reaching consequence on consumer demand and expansion plans of companies at a time when we are seeing recovery in certain sectors. Though buoyancy in credit demand will not take place until some large projects take off and the global markets fully recover, low interest credit in sectors like infrastructure, housing and consumer durables should continue for a sustained recovery. While bankers may expect a strong pick-up in loans for reviving stalled projects and planning new capacity expansion plans after the Budget, any interest rate hike will be a real dampener for creating a demand for bank funds. Real demand needs to pick up in non-metro and rural markets which is crucial to sustain the overall growth for the manufacturing sector.
saikat.neogi@expressindia.com