INDIA
BUSINESS WORLD -
MAY 2006
THE MONTH THAT WAS...
APRIL BURST: SURGE IN CORPORATE LOAN OFFTAKE
FOR the first time in several years bank loans to corporates and retail customers have grown in the first few weeks of April — a month when business is usually slow. However, this has been an unusual year when total bank loan has surged.
According to the latest figures released by the RBI, non-food credit rose Rs 3,555 crore during the fortnight ended April 14. This is on the back of a very strong growth in loan off-take which recorded a growth of around 30% for two consecutive years. However, total bank credit dipped Rs 4,153 crore on account of a Rs 7,708 crore fall in food credit during the fortnight.
For the last two years, banks have been recording a strong growth in credit — an average of around Rs 25,000 crore every fortnight. While the loan boom is a reflection of higher growth, the 30% growth for two consecutive years has worried the RBI, which raised interest rates and directed banks to set aside more capital and make extra provisioning out of their earnings to protect their balance sheets.
Even deposits — both term as well as demand deposits— have shown a strong growth during the fortnight. And for the first time after several fortnights, banks have managed to raise more funds as deposits than they have lent as loans. Deposits rose Rs 25,431 crore during the fortnight with demand deposits clocking a growth of Rs 14,524 crore and term deposits rising Rs 10,907 crore during the fortnight.
The first fortnight of the fiscal is generally marked by a dip in credit as well as a slow growth in deposit. Moreover, the short-term loans or short-term deposits, which banks primarily do to window dress their balance sheet towards the close of the year, are reversed in April. This inevitably results in some dip in business. Even though such artificial transactions to dress up the books have happened this year too, the credit growth is possibly high enough to offset the impact.
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