ManagementNon-bank funds cover up for lower credit flow
The flow of resources from other entities to the corporate sector has almost made up for the shortfall in non-food bank credit.
- Undisbursed loans may lead to rate war, even if RBI tightens - Govt banks struggle, but private banks"credit growth picks up - Revival in capital inflows gathers momentum - Credit flow to industry falls, infra gains most - Food inflation may engulf other sectors - "RBI may signal end of easy monetary policy by hiking CRR"
According to data by the Reserve Bank of India (RBI), non-bank credit dropped by Rs 52,831 crore between April 2009 and January 2010. There was also a decline in funds made available by Life Insurance Corporation, non-banking finance companies and financial institutions.
In contrast, flow of resources from non-banks rose Rs 47,504, aided by equity and commercial paper issues and higher inflow of foreign direct investment.
As a result, overall decrease in resource flow to the commercial sector has been Rs 5,327 crore, or 0.89 per cent.
Bankers said companies had been reluctant to raise debt. In a large number of cases, banks have sanctioned loans but these are yet to be disbursed as companies are waiting for demand to improve before they expand capacity. For example, State Bank of India has seen the gap between sanctions and disbursals rise to around Rs 50,000 crore.
At the same time, in the initial part of the year, with stock markets picking up, a host of companies raised money from institutional investors, including though depository receipts, to reduce the leverage ratio.
In addition, data showed that there was a near 11-fold jump in subscription of commercial paper by non-banks. Though RBI did not say this in the report, it pointed out that bank investments in debt schemes floated by mutual funds had shot up to Rs 1,50,085 crore during April-December 2009, as against withdrawal of nearly Rs 28,000 crore a year ago. In the past, it has raised concerns over a part of these proceeds being invested by mutual funds in papers floated by companies.
BRIGHT FUTURE
Flow of Financial Resources to Commercial Sector (Rs cr)
Item
April-January
2008-09
2009-10
% change
Adjusted Non-food Bank Credit
283855
231024
-18.61
Non-food Credit
274867
237036#
-13.76
Non-SLR Investment by SCBs
8,988
-6,012#
NA
Flow from Non-banks
310888
358392
15.28
Domestic Sources
1,66,941
1,94,758
16.67
Public issues by non-financial entities
13,559
19,791 ^
45.96
Gross private placements by non-financial entities
44,151
81,617##
84.86
Net issuance of CPs subscribed by non-banks
4,390
47,744 **
987.56
Total gross accommodation by 4 RBI regulated
9,839
-1,461 ^
NA
AIFIs - NABARD, NHB, SIDBI and EXIM Bank
Net credit by housing finance companies
29,063
9,852 *
-66.1
Systemically important non-deposit taking NBFCs
15,661
1,889 *
-37.09
LIC’s net investment in corporate debt,
infrastructure and social sector
50,278
35,326 ^
-29.74
Foreign Sources
1,43,947
1,63,634
13.67
External Commercial Borrowings/FCCBs
31,969
23,874 ^
-25.32
ADR/GDR issues excluding banks
4,686
14,476 ^
209.92
Short-term credit from abroad
6,799
4,447 *
-34.59
FDI to India
1,00,493
1,20,837 *
20.24
Total Flow of Resources
5,94,743
5,89,416
-0.89
Investments in Debt (non-Gilt) Schemes of Mutual Funds
-28,793
1,50,085 ^
NA
#: Up to January 15, 2010. *: April-November. ##: April-September. **: Up to January 1, 2010. ^: April-December.
Source: RBI
Bankers, however, say that in the absence of credit demand, they have little option but to invest and mutual fund schemes offer better returns than RBI’s reverse repo window, where they earn 3.25 per cent a year. Liquid funds at present offer 4.19 per cent, according to Value Research, which tracks mutual funds.
But the RBI document said that there were signs of a turnaround in credit demand due to strong manufacturing sector growth and signs of pick-up in private consumption demand. If the trend continued, overall resource flow to the commercial sector could be positive by the time RBI presented the annual policy statement for 2010-11, it said.