Credit growth slips to decadal low in FY13

Mumbai: Non-food credit growth slipped to a decadal low of 14% in FY13, below the Reserve Bank of India’s (RBI’s) projection of 16%. Lower disbursements to industry and agriculture weighed on credit growth. Credit to industry slowed to 15.7% in FY13 from over 20% in previous fiscal due to policy hurdles which affected mining, quarrying, petroleum, coal, nuclear fuels and infrastructure sectors. Credit to agriculture sector grew at 8% compared with 13.3% the previous year.

add_main_imageA limited monetary transmission and prolonged economic slump means that this situation might persist for some more time. Despite a 100 basis points repo rate cut in the past year, banks have only cut their base rate by meagre 25-30 basis points because of the liquidity deficit in the system and weak deposit growth. The central bank’s tone in its macroeconomic and monetary developments report is hawkish. It remains to be seen whether it will also cut the cash reserve ratio prompt banks to pass on interest rate cuts.