Flow of financial resources from banks to commercial sector improving: RBI

Reserve Bank of India | File Photo
The Reserve Bank of India (RBI) on Tuesday released a new statistical table, showing healthy growth to the commercial sector.

According to the table, the year-on-year (YoY) growth in financial resources from banks to the commercial sector grew at 15.6 per cent for the fortnight ended November 9. The outstanding of resources mobilised stood at Rs 97.3 trillion. Out of these, non-food loan outstanding, the traditional metric of credit growth, was Rs 90.5 trillion, registering a growth of 14.6 per cent YoY.

The table, which measures ‘adjusted non-food bank credit’, was used internally earlier, but will be standard feature from now onwards. The adjusted bank credit adds various investments done by banks in the commercial sector, such as investments in commercial papers, investments in shares, and investments in bonds and debentures.

The central argument seems to be that a bank not only provides loans to the commercial sector, but it lends through other means as well, and all should be taken into consideration to gauge a bank’s contribution to the commercial sector.

However, the components here are investments, which are a treasury activity of a bank, and not pure lending activity, pointed out a bank treasurer.

“The components are subject to mark-to-market losses, and therefore cannot be considered more than market instruments for investments where a bank is one of the investors,” said the banker. Still, the centrality of the argument holds in the present scenario where the RBI is being blamed for choking off credit flow to the commercial sector, by imposing prompt corrective action (PCA) framework on 12 banks, of which 11 are state-owned.

The RBI doesn’t want to dilute the PCA norms, but has agreed to review some of the norms to see if some banks could be excluded from the framework. When a bank is in PCA, it cannot lend or accept deposit like before. The shrinkage of balance sheet is done to preserve capital of the bank.

In terms of non-food credit growth, the last time loans grew at 15 per cent was five years ago, in the fortnight ended November 15, 2013. In March 2017, credit growth fell below 4 per cent as companies scaled down their investment plans following demonetisation.

The ‘adjusted non-food bank credit’ in mid-April 2017 (the last data point available) was at around 6.5 per cent, shows the RBI’s latest newly published table.


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