RBI Deputy Guv talks on factors that are slowing loan offtake

Many experts believe that to spur growth, interest rate should have to come down, as inflation has softened

Reserve Bank of India Deputy Governor S S Mundra defended the Reserve Bank of India’s anti-inflation stance and said capital cost was not the only reason for low credit offtake in the banking system.

“There were several factors responsible for low credit offtake. . .  Growth in credit is a function of both slowdown in economy and high interest rates,” he said, on the sidelines of a two-day retreat for banks and financial institutions at Pune.

“We’ve articulated several times that there are certain things which are interlinked . . . inflation, rate of interest, real rate of interest to the saver. In the last policy, the RBI governor has also clearly articulated what kind of enabling framework would be there,” he added.

After hiking interest rates thrice between September 2013 and January 2014, the central bank has maintained status quo, amid slowing economic growth.

Many experts believe that to spur growth, interest rate should have to come down, as inflation has softened.

Retail inflation slowed to 4.5 per cent in November, the slowest rate recorded since the data series was first published in 2012.

According to RBI data, as of December 12, credit grew 10.8 per cent year-on-year, compared with 14.9 per cent during the corresponding period last year.

This was the worst credit growth since 1997. 

Credit growth was only 5.2 per cent in the current financial year (April-December).

Mundra also added that the change in Priority Sector Lending norm will not be unduly delayed.

“Review of priority sector target norms will not be unduly delayed but difficult to put a timeframe to it,” he added.

He also said rise of bad loans in the banking sector has come down but RBI would be vigilant and would continue to monitor the situation.