Reserve Bank of India data shows that non-food bank credit increased by Rs1,18,257 crore in the first half of 2009-10, less than 50% of the growth in the same period last year. One reason for the low growth is the lower requirement of credit by petroleum and fertilizer firms, which were forced to bear the burden of subsidies last year. Credit to these firms grew by Rs22,391 crore in the first half of 2008-09, while it contracted by Rs9,179 crore in the same period this year. Even after adjusting for this impact and after taking into account the impact of bank investments in corporate paper, the adjusted non-food credit growth this fiscal year is still substantially lower than what it was in the same period of 2008-09.

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Public issues by non-financial entities, private placements by non-financial firms and commercial paper subscribed to by non-banking firms were substantially higher this fiscal. Resources made available by Life Insurance Corp. of India, too, were higher. Among foreign sources, while the volume of external commercial borrowings is lower, global and American depositary issues by non-banking companies have been more than last year. Foreign direct investment inflows have also increased.

Taking all these sources into consideration, the total flow of resources to the commercial sector in the first half of the year has been Rs3,37,991 crore, 72% of last fiscal’s first-half tally of Rs4,68,211 crore. And if only the September quarter numbers are considered, the shortfall is only 20%. That probably accounts for the fact that despite the steep slowdown in bank credit growth, there’s little talk of a credit crunch by businesses.

In 2007-08, non-food credit accounted for 44% of the total flow of resources to the commercial sector. In the first half of 2008-09, it accounted for 51% of total resources. In the first half of the current fiscal, it accounted for 32% of total resources. It shows how important non-bank funding for firms has been this year.