Credit delivery dips – Banks for Government Securities

Credit delivery in India is declining amidst slowing economic activity and uncertain outlook. Banks have also become extremely cautious as the proportion of non performing assets (NPAs) in total disbursement increases.

During the last quarter of 2008, Indian banks lent a total of Rs 1,15,630 crore against Rs 1,30,000 crore lent during the September quarter, thus registering a quarter-on-quarter de-growth of nearly 11%. Further, banks flight to the gilt edged market and their increasing apetite for government securities becomes clear from the fact that they disbursed merely Rs 11,960 crore of non-food credit compared to Rs 64,262 crore of investment in the government securities over the fortnight ending January 2, 2009.

Reserve Bank of India (RBI) had said earlier that one of the reason for it to not go for sharp cuts in cash reserve ratio (CRR), the proportion of deposits that banks are required to park with the apex bank, was declining demand for credit seen in near future.

However, it is not just declining demand from corporates, but the heightened risk aversion by banks too is leading to lower reduced delivery. Banks have virtually walked out of segments like auto loans in fear of increasing NPAs.