Non-Food credit falls for the first time after six years

The doomsayers of Indian economy saying that the economy is overheating get an answer in the non-food credit take off in the first quarter of the financial year 2007 from April-June, 2007. Latest RBI figures reveal that aggregate non-food credit extended by banks declined by Rs. 30,352 Crores between April and June 22 to Rs. 18,17,955 Crore. For the first time after six years, the non food credit growth is heading towards south. Though a slow credit demand is normal in the first quarter, the lean season, for the first time in 24 quarters, banks are seeing their loan portfolio shrink. Significantly, it is happening when deposits parked in banks are recording the highest quarterly growth of over Rs. 1,00,000 crores, thanks to the aggressive methods followed by various banks to attract meidum term fixed deposits.

The RBI has taken various measures like interest rate hikes, give directions to the banks to rate the exposure to the real estate and reatail sector as high risk area, making the real estate and retail sectors difficult to get the bank loans and even if they get, at a premium interest rates. All these measures have an impact in the form of decline in credit off take. These measures are mainly aimed at containing the inflation and also avoiding any bubble in the real estate sector which will have dangerous consequences on over all health of the economy.

But, many bankers feel that the decline is a temporary phenomenon. With the start of busy credit season coming, with many companies looking at expansion and acuisitions, and also with the recently goverment cleared SEZ proposals, the credit growth may see north wards from the next quarter.

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