Recent data from the India’s central bank, the Reserve Bank of India, show a sharp contraction in loans given by all scheduled commercial banks in the fortnight to 24 April.
That is perfectly normal, as loan outstandings usually fall during this time of the year, not only because of window dressing by banks during the end of the fiscal year in March, but also because the first few months of the fiscal year are traditionally the slack season, and credit offtake during the period is very low.
The pertinent question is: how does credit growth (especially growth in non-food credit) in April compare with growth during the same period last year?
The accompanying table shows credit growth for every month from January onwards for 2008 and 2009. Notice that the drop in non-food credit in April this year is much lower than the drop over the same period last year, which is encouraging.
Also See April credit growth better than last year (Graphic)
What’s more, the table also shows that April was the first month during which non-food credit numbers have been better in 2009 than in 2008.
The big worry about the current upturn in the economy is that it is the result of the fiscal push by the government, and when its impact wanes, growth will slump once again. The credit numbers for April show that is not the case.
The fall in non-food credit during the two weeks between 10 April and 24 April, though, has been much more than during the same period last year. While a fortnight’s data do not make a trend, it’s best to keep a wary eye out for the credit numbers.
If credit growth slows compared with the same period last year, it would be a warning signal that the recovery may be running out of steam.
Graphic by Sandeep Bhatnagar / Mint
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