MUMBAI, July 5: Bank credit has shown the first signs of sluggishness this fiscal. During the fortnight ended June 20, it has showed a negative growth of Rs 1,586 crore. This is for the first time that bank credit has pierced the March 31 level. So far, the overall bank credit has been positive despite a dip in the non-food credit offtake.

Money supply during the fortnight ended in the first week of June, breached the 16.5 per cent mark and rose to 16.6 per cent against the targeted growth of 15.15.5 per cent. Industry analysts have attributed the fall in bank credit to general slackness in the economy during the first quarter of the current fiscal.

"The growing political instability has led to the shelving of all major investment decisions. The non-food credit is unlikely to pick up in the next few months," a banking analyst with a foreign institutional investor said.

Senior bankers, in their meeting with the Reserve Bank of India governor C Rangarajan, said that the general slowdown in the economy, substitution of loans with corporate debts and external commercial borrowings and a fear pychosis among bankers were the three prime reasons for the tardy credit offtake in the current fiscal.

However, the decline in credit offtake during the current financial year is low compared with the decline in the previous financial year. Bank advances had fallen by Rs 4,990 crore over the March 31 figures for the same period in the previous financial year.

During the fortnight ended June 20, bank credit fell by Rs 856 crore over the previous fortnight. While non-food credit fell during the fortnight by Rs 1,015 crore, food credit rose marginally by Rs 160 crore.

However, investments and aggregate deposits of the banking sector are growing unabated. The deposits grew by Rs 1,216 crore to Rs 5,18,923 crore during the fortnight ended June 20. The deposit growth over March 31 has been to the tune of Rs 13,324 crore.

Bank investments took a tumble during the fortnight as marginally high call rates saw banks shying away from parking funds in government securities.Investments fell by Rs 1,581 crore to Rs 2,07,138 for the fortnight representing a 0.8 per cent fall over the previous fortnight.

However, investments have grown by a whopping 8.7 per cent during the current financial year which is much higher than the 2 per cent rise registered during the corresponding period in the previous year.

The centre's resort to the ways and means advances has continued to remain zero with the government still aflush with temporary cash surpluses. "One of the chief reasons for the rise in bank deposits is the unabated rise in the money supply," an analyst explained.

One of the chief components of money supply - currency with the public - has shown a 11.9 per cent rise during the year over the previous year while the demand and the time deposits with banks have grown by 18.1 per cent and 18.4 per cent, respectively, over the previous year.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.