The bank rate has dropped to 9 per cent from 10 per cent. Similarly, IDBI's medium-term lending rate (MTLR) is down to 14 per cent from 14.50 per cent and prime lending rates of major commercial banks have softened to 12.75-13 per cent from 13.50 per cent last year. This has happened partly due to the Reserve Bank of India policies and mainly due to the lack of demand for funds from the industry. But this drop has failed to enthuse the industry to borrow more.

Unfortunately, on the other hand, the softening of the deposit rates has decelerated the growth of time deposits, limiting the resource base of scheduled commercial banks. Deposit rates of more than one year maturity have come down to 9-11.5 per cent from 10-12 per cent a year ago.

The aggregate deposits growth of scheduled commercial banks during the first five months ofthe fiscal has decelerated to 4.3 per cent from 4.6 per cent during the corresponding period last year. The growth in time deposits decelerated to 6.6 per cent from 7.2 per cent.

The deceleration in deposit mobilisation would have hurt banks had there been adequate demand of funds from the industry. Still, to meet the residual demand, banks have to increase their recourse on borrowing from the RBI, which shot up by 217 per cent amounting to Rs 1,072 crore. Also the balances with the RBI decelerated marginally to 2.2 per cent from 3 per cent. Investment in government and other approved securities, too, decelerated to 9.7 per cent during March-August 1998 from 15.2 per cent during the corresponding period last year.

What has not happened is the spurt in offtake of credit by the commercial sector despite softening of lending rates. According to a senior banker, "Commercial organisations cannot lend recklessly."

Explanations notwithstanding, the plight of the industry reeling for want of funds can be gaugedfrom the fact that during the first five months of the current fiscal non-food credit has declined by more than 2 per cent. The decline is more marked compared with (-)1.6 per cent during the corresponding period last fiscal.

The overall bank credit by scheduled commercial banks fell by about 0.7 per cent in the first five months of the current fiscal. The only saving grace on the lending side has been robust growth in food credit which has risen by 36.1 per cent during March-August 1998. Food credit during the corresponding period last year was up by 22.9 per cent.

Although bankers expect the lending to pick up during the busy season, much would depend on the Reserve Bank's credit policy to be announced shortly. The RBI governor Bimal Jalan had hinted at tight monetary policy and even the International Monetary Fund (IMF) had urged India to adopt tough monetary stance with the aim of containing inflationary expectations.

The RBI, however, would also have to keep in view the resource position of thebank before finalising the credit policy for the second half to avoid any mismatch.