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Bank credit grows 22%, slowdown seen

Led by a healthy loan demand, credit from banks in the country grew by over 22% to Rs 40.8 lakh crore in 2010-11 as against Rs 33.4 lakh crore in 2009-10.

india Updated: Apr 22, 2011 21:12 IST
Sachin Kumar

Led by a healthy loan demand, credit from banks in the country grew by over 22% to Rs 40.8 lakh crore in 2010-11 as against Rs 33.4 lakh crore in 2009-10. Deposits grew by 16.7% to Rs 54.8 lakh in 2010-11 as against Rs 46.9 lakh crore during 2009-10, according to the Reserve Bank of India (RBI) data.

"Demand from large and mid- corporate was among the major factor behind credit growth during the last fiscal," said Sachin Sondhi, leader, financial sector (banking), Deloitte.

The RBI had fixed a target of 20% growth in credit and 17% growth in deposit during 2010-11.

The banking sector does not expect to witness the same kind of growth it witnessed last financial year.

"We expect loan growth for the banking sector to remain at 17% in 2011-12," said Mahrukh Adajania, banking analyst, Standard Chartered Bank.

For the last few months inflation, which is currently at 8.98%, is on a high level and is the main cause of worry for the policy makers. To contain the inflation from further going up RBI is expected to increase policy rates in current year also. The hike in rates will in turn increase the cost of funds for the banks and will lead to increase in their lending rates.

"We expect the RBI to hike by another 100 basis points (100 percentage points = 1%) in 2011 to counter surging, broad-based core inflation," said Samiran Chakrabarty, chief economist, Standard Chartered Bank.

Experts believe that hike in the lending rate will lower the credit demand in the country.