Non-food credit growth confirms recovery in July

Non-food credit growth confirms recovery in July
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First Published: Wed, Aug 12 2009. 11 38 PM IST

Updated: Wed, Aug 12 2009. 11 38 PM IST
After the exhilarating numbers for industrial production in June, confirmation that the recovery continued in July comes from data released by the Reserve Bank of India on Wednesday.
Growth in non-food credit for scheduled commercial banks during the two weeks to 31 July was robust at Rs28,728 crore. In the preceding two weeks, credit growth had fallen, raising fears that the recovery was faltering. Those worries have now been laid to rest. Year-on-year, the growth in non-food credit as on 31 July was 15.9%.
The credit-deposit ratio eased further to 69% as on 31 July, from 69.2% two weeks earlier, indicating comfortable liquidity with banks. It’s worth noting that a year earlier, this ratio was 72.6%. This liquidity has been channelled into government securities, helping to keep yields low.
Given the strength of the recovery, credit growth should pick up further in the months ahead. But the drought could be a dampener. Bank of America-Merrill Lynch economist Indranil Sen Gupta points out that consumer durables contracted 6% during the 2002 drought.
While inflation continues to be a worry, Sen Gupta says: “The spread between bank prime lending rate and the 10-year (yield), at around 450 basis points, remains much wider than the average of around 400 basis points. This should protect lending rates for now against harder yields.” One basis point is a hundredth of a percentage point.
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First Published: Wed, Aug 12 2009. 11 38 PM IST