Non-food credit during the fortnight ended October 9, 1998, has shot up by a whopping Rs 6,512 crore. With this, bank credit to the commercial sector has shot up close to Rs 11,000 crore in just 30 days as the last fortnight of September witnessed a non-food credit growth of Rs 4,258 crore. "It is rather unusual... The sudden credit growth when the industrial sector is facing a slowdown is surprising. The central bank wants to know whether the flow of credit is being channelised to the productive sector," a senior banker said.

The RBI has directed bankers to compile a list of corporates which have been drawing bank credit. "We are trying to find out how the funds are being used," RBI sources said.

The central bank's move assumes significance against the backdrop of the economic downturn. In his credit-monitoring meetings with bank chiefs, RBI deputy governor YV Reddy hadasked bankers to draw up separate lists of corporates which have been drawing bank credits and those which have not. Reddy had also asked bankers to find out whether bank loans are being used for productive purposes.

With the sudden spurt in credit growth over the last two fortnights, total outstanding non-food credit rose to Rs 3,18,565 crore. Bank credit so far has risen by Rs 10,435 crore (3.2 per cent) against Rs 6,141 crore (2.2 per cent) registered in the corresponding period of the previous year.

During the half year ended September 30, 1998, bank credit posted a 1.3 per cent (Rs 4,053-crore) growth. This was against a growth of 0.5 per cent during the corresponding period in the previous year. Analysts have attributed the sudden jump in credit offtake during the last fortnight of September to the window-dressing resorted to by banks in order to shore up the assets in their balance sheets.

The year-on-year growth in bank credit during the first half of the current fiscal stood at 17.3 per cent(Rs 48,396 crore). This is against a year-on-year growth of 21.5 per cent (Rs 1,17,458 crore) in aggregate bank deposits.

During the fortnight ended October 9, 1998, aggregate bank deposits in the banking system grew by 1.2 per cent (Rs 7,967 crore). Investments during this period declined by Rs 3,351 crore (1.3 per cent), largely due to the substantial increase in credit offtake.

The centre's resort to ways and means and advances during the week ended October 9, 1998, increased by Rs 3,176 crore to Rs 6,996 crore, while foreign exchange reserves climbed up by $137 million to $29.60 billion.

INSIGHT:

Inflation must be considered: Year-on-year, the growth in non-food credit is 15.6 per cent, and has been steadily increasing. However, this growth needs to be viewed against the higher inflation rate this year. What is important is the rate of real credit growth, that is, the nominal rate adjusted for inflation. Allowances also have to be made for the fact that corporates have beensubstituting foreign for rupee debt, due to the drying up of external sources of finance.