The government, with a view to boosting economic growth, has been nudging banks to increase credit growth. Most public sector banks announced cuts in interest rates during the October-December period to woo customers.
In September last year, just ahead of the festive season, appetite for credit picked up considerably as data suggests, with credit growth touching 18%.
“Manufacturing activities have remained weak and there is no improvement in the overall sentiment and this has naturally impacted the appetite for credit. The situation is not likely to improve anytime soon,” DK Joshi, chief economist, Crisil told HT.
“Demand for credit has remained weak and there has been a sluggishness in credit appetite after October as there is tepid demand from companies and SMEs,” said Soumay Kanti Ghosh, chief economic adviser, State Bank of India.
Bankers also said that with the surge in the level of bad assets — loans that do not fetch returns — lenders have been wary in giving big-ticket loans to companies and even to retail lenders.
Finance minister P Chidambaram has meanwhile advised banks not to be over cautious, despite an increase in the level of bad assets in the banking system.