CII Communique - December, 2010

eview
in the rise of currency growth over deposits growth
which in turn has lowered the money multiplier, thereby
lowering M3 growth. This has led to the diversion of
resources toward cash accumulation and investment
in non-financial assets, including gold and real estate,
whose prices have shown significant increases over the
course of the current year.
The credit growth rate has accelerated moderately
mainly in the non-food category, particularly to the
infrastructure sector, especially power, telecom and
housing. Besides bank credit to the commercial sector,
there has been a higher flow of funds from other
sources, showing significant improvement as compared
to last year. This mismatch between credit and deposit
growth rates has led to a rise in the credit-deposit
ratio (72.7). Any pick-up in credit growth is likely to
put further pressure on liquidity and therefore on
interest rates. On the other hand, the second round
of quantitative easing in the US will ease interest rates
abroad, making it more attractive for Indian firms to
go in for overseas borrowing.
Trends in Credit- Deposit Ratio and
Bank Credit
Source: CMIE
Sectoral Deployment of Gross Credit up to
September 2010
Source: RBI
Disaggregated data on sectoral deployment of gross
credit shows marked improvement in the credit off
take by industries. Uptil September 2010, almost 44.0%
of the credit had been absorbed by the industrial
segment. This expansion has been led by engineering;
rubber, plastic and their products; food processing;
paper and paper products; chemical and chemical
products; vehicles and infrastructure. A decline has
been witnessed in the proportion of priority lending
to micro and small industries from 6.7% in September
2009 to 5.2% in September 2010. A substantial hike of
about 10.0% to 10.4% in commercial real estate and
10.0% in professional services under the service sector
has been posted in September 2010 from their levels
of 1.9% and 1.5% respectively during the same period
a year ago.
Future Outlook
The macroeconomic and monetary projections are
subject to a number of upside and downside risks. The
main risk stems from the slow, uneven and prolonged
recovery process in the advanced economies which
Credit Flow from Scheduled Commercial Banks (Rs. Crores)
Item
Outstanding as on
8 October 2010
Variation (Y-o-Y)
As on 9 October 2009 As on 8 October 2010
Amount Percent Amount Percent
Public Sector Banks 2,567,838 283,483 15.2 424,171 19.8
Foreign Banks 175,580 -29,770 -15.9 17,979 11.4
Private Banks 639,361 12,076 2.4 124,213 24.1
All Scheduled Commercial
Banks*
3,468,999 279,305 10.7 580,005 20.1
* including Regional Rural Banks
Source: RBI
Communiqué December 2010 | 17