There are signs that credit growth is at last starting to pick up. On a year-on-year (y-o-y) basis, credit growth as on 18 December stood at 11.3%, a rebound from the 9.8% y-o-y growth it had slowed to in early November. But that is just a statistical effect, the result of the lack of credit growth during the end of 2008 as a result of the panic around that time. It makes little sense to look at y-o-y numbers at the moment, because the data will be affected by the low base at the end of 2008.
Instead, we look at month-on-month numbers and find a respectable rise in non-food credit during November-December and a considerable rise from the very low level of credit offtake in September-October. As the chart shows, non-food credit growth between mid-November and mid-December was Rs39,338 crore, a 61% rise over the non-food credit growth from mid-October to mid-November, which was Rs24,365 crore. And that in turn was immeasurably better than the mere Rs1,816 crore rise between mid-September to mid-October.
As we have mentioned before in these columns, credit growth is a lagging indicator. Nevertheless, it is important inasmuch as the lack of credit growth was being cited by the Reserve Bank of India (RBI) as one factor that cast some doubt about the robustness of the recovery. Nevertheless, it’s worth taking a look at credit growth during the same period of 2007 to gauge the strength of the recovery. It turns out that, between 23 November and 21 December 2007, non-food credit increased by Rs44,302 crore. In the earlier month between 21 October and 23 November 2007, non-food credit rose by Rs47,184 crore. So growth in non-food credit is still somewhat below the level reached two years ago.
It’s also worth noting that in spite of the rise in credit offtake, liquidity continues to be ample. The pick-up in credit growth, together with rising inflation and generous liquidity, could lead to RBI tightening rates sooner rather than later.
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