Banks experience spout in credit flow as the year approaches end
By Neelima Shankar
Mar 11, 2010
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Banks are seeing a huge gush in credit flow as lenders are demanding more loans to meet their annual targets. The credit flow of banks has shown an increase by Rs 37,465 crore during the second half of February -- the highest fortnightly disbursal seen this quarter.

Bankers are ready to take up this credit upsurge and expect the rush to extend till March even if that means lending at lower rates. Banks like SBI are sitting with Rs 40,000 crore surplus cash.

As per the data released by RBI, the credit flow from banks during the twelve months ended on 26th February this year has grown by 13.81 %. As on Feb 26, 2010 the outstanding credit for banks has been estimated to be Rs 30, 89,323 crore as against Rs 30, 51,676 crore at the end of February 12, 2010.

Despite the credit upsurge observed in the last few weeks, the target set by the RBI at 16% has not been met. The projection will only be met if banks are able to lend around Rs. 1, 20,000 crore this month.

Commenting on the credit gush, senior bank executives said that growth was still lagging and most of the demand was for working capital requirement.

"We see demand from the corporate sector, especially in the public sector, increasing for short term loans. We are yet to see full-fledged demand in the system. Generally, demand for credit picks up at the end of the quarter," said P Narendra Executive Director Bank of India.

Most of the fund is being picked up by public sector undertakings, including oil companies. The growth in SME, retail segment is not happening in the way we would like it to be," said G S Vedi, chairman and managing director of Punjab and Sind Bank.

"On a year-on-year basis, the overall credit growth could be 14-15 per cent by the end of March. Disbursements are taking place this month. We expect the overall credit growth to be in the range of 15-20 per cent," added Parthasarathi Mukherjee, Head Credit at Axis Bank.

Bankers also feel that the sudden surge in credit might be due to the shift to base rate system to be implemented from July.

"Short-term loans at lower rates will disappear after the base rate is applicable. Corporates are availing more short-term loans before that," said a senior executive of a public sector bank. Cost of funds is not a concern for banks. With increase in CRR, the cost of funds has risen marginally and banks have started charging more than what they used to charge at the start of the quarter.


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