As on 9 September, non-food credit growth, on a year-on-year (y-o-y) basis, was 20.1%. That’s very high and doesn’t seem to square with the slowdown in economic activity. All the more so because at the end of July, y-o-y growth in non-food credit was 18.2%.

Well, that little mystery has been solved. The Reserve Bank of India’s month-end statement on the industry-wise deployment of gross bank credit shows that outstanding loans to the “petroleum, coal products and nuclear fuels" sector increased by 8,404 crore in August (between 29 July and 26 August). Over the same period, non-food credit increased by 31,490 crore. In short, 26.7% of the rise in non-food credit during August was on account of the loans to the petroleum sector. Most of the increase was undoubtedly on account of the under-recoveries of oil marketing companies that forced them to borrow more from banks to meet their cash flow needs.

Also See | Clogged Credit (PDF)

Growth in loan outstandings to the infrastructure sector was the other big increase during August, accounting for 6,174 crore. Taken together, growth in infrastructure lending and loans to the petroleum sector accounted for 46.3% of the total increase in non-food credit in August.

Also, while y-o-y growth in non-food credit is more or less at the same rate as last year, the fact is that non-food credit growth has slowed this fiscal. While growth has been 2.5% this fiscal year (till 26 August), it was 3.3% over the same period in fiscal 2011 (FY11).

Interestingly, there has been zero growth in loan oustandings to the services sector this fiscal. Growth in personal loans has been 2.8% so far in FY12 compared with 4% over the corresponding period last year, although lending to the housing sector has been higher than last year.

Growth in loans to industry, however, has held up well at 5.8% so far this fiscal, the same rate as that during the year-ago period. But while outstanding loans to the petroleum sector fell by as much as 26.7% during the first five months of FY11, they are up 6.9% over the same period in FY12.

In short, the real picture shows that bank lending, too, has actually been slowing, despite the headline y-o-y numbers for non-food credit showing strong growth.

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