MUMBAI, February 8: Does a sudden spur in credit off-take reflect an industrial revival?Experts think differently and say corporates have only identified a new way to make money, making best use of the abnormal short-term interest rates and a liquidity squeeze in the money markets.
"Look, what has changed fundamentally in the past one month that has resulted in corporates making a beeline for bank credit," a leading private-sector bank official.
"It is only an artificially-propelled spur in creditoff-take," he said.Corporates are borrowing only to deploy in the money markets for a short period and make quick money, he added.
According to the Reserve Bank of India's (RBI's) weekly statistical supplement, for the fortnight ended January 16, the non-food credit increased by 6,657 crore, while demand deposits of the banking sector decreased by 658 crore.
There has been a greater increase in bank advances and a heavier fall in deposit mobilisation in the subsequent week, he said. "Corporate houses areborrowing and withdrawing their deposits with the banks to park them in open-ended mutual funds," he added.
The overnight call averaged at 54 per cent for the shortened reporting week ending January 29. Corporates along with the mutual funds turned into major lenders in the market.
Many mutual funds lent heavily in the call-money markets and high- yield treasurey bills, when the call rates peaked up to 140 per cent.
Dealers said the mutual funds made hay while the banks became net borrowers in the market after the RBI's measures to tighten up liqudity made them scramble to cover positions and avoid defaults.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
