Bank Credit

If we talk about the credit system prevailing in Indian economy, we see that the non-food credit or the amount lent by the bank to the Individuals and companies have shown a rising spree growing 16% Y-o-Y. The credit is reported as Rs 48.54 Lakh Crore as of December 15, 2012. The loan increment is however slightly lower than what was recorded in the previous fortnight at 16.40 %. (Data released by Reserve Bank of India)

The projected growth in the credit by the central bank is around 17% credit for 2012-13. Looking at the positive growth until December 15 2012, it is expected to reach the target of 17% mark in the period of January-March 2013.

One of the executive directors of PSU bank recently said:

“Banks will surely attain the RBI’s credit growth projection towards the end of the financial year”

Also it is noted that the banks have started lending to the non banking finance companies or the NBFCs. The loan is also being extended to the real estate development companies which have strong past recorded in the sector and have a positive track record of maintaining adequate cash flow, interest coverage ratio.

Loans to NBFCs, RE & Manufacturing sectors

The recent appeal to RBI by the finance ministry, to give the housing sector infrastructure status would help banks boost the lending. The Banks have currently started lending to NBFCs and branded real estate developers which are a new segment of lending for the banks, which is helping them grow their books. The 12^th Five Year released by the Planning Commission made a huge emphasis on the development of Infrastructure sector and have allotted sum to the tune of 1 trillion USD, this move has added some momentum to lend to the infrastructure development companies.

Loans to the manufacturing sector are being disbursed cautiously as the current stature of the sector is not appealing due to rising deficit. Thus the loans in the manufacturing sector is expanding very judiciously.

Read more about Top Ten Banks in India.

Trend in Credit Disbursement

If we talk about the historical trend in the credit disbursement by the banks, we see that the quarter four is the quarter when the credit expansion is at peak. Other quarters showed marginal fluctuation in credit growth. Thus for the current year too, the banks are expecting a similar trend which will lead to the improvement in the credit during the fourth quarter helping them to reach the expected level of credit disbursement.

The slow growth in the retail segment and low disposable income in the current quarters, however did not allow the banks to go for retail credit disbursement of loans and thus it resulted in lowering of the credit during the festive season of Diwali until Christmas. This was the time when there was very less disbursement of loans by the banks, thus resulting into marginal growth in the credit disposal as compared to other quarters.

The rate cut by the central bank would help boost the credit, but it is mandatory to ensure that the Basel norms of maintaining adequate core capital should be followed by the banks. It is also important to ensure that the disbursement of loans is done only to individuals with proper credit rating, so that the default risk is lowered by the banks. This would help the banks to properly utilize the funds and gain the maximum interest over the period of time.

Conclusion

Thus in a nutshell we can say that the lending process of the banks are important in the economy and it is expected that the banks could achieve the target lending set by the central bank in the final quarter of 2012-13.

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