Festival offers have failed to bring cheer to retail bankers while higher interest rates and the likely peaking of the investment cycle is keeping wholesale bankers less busy these days.

The slowdown in credit offtake in the first six months of 2007-08 is showing no signs of reversing with the year-on-year credit growth for the fortnight ended October 26 slipping to 22.47 per cent from 23.3 per cent at the end of the preceding fortnight.

Despite a flood of festive offers to boost retail demand, there has been no pick-up in credit for purchase of homes, cars or consumer durables. And as far as corporate borrowing is concerned, companies prefer to leverage their cash surpluses rather than turn to banks for funds.

"Though asset growth has been generally subdued, the general feeling is it will pick up. There are hundreds of thousands of crore of advances pending disbursement," said O P Bhatt, chairman, State Bank of India [Get Quote], at the analyst meet to review the bank's 2007-08 second quarter results.

"Maybe growth hasn't picked up because of high interest rates, or corporations are tying up alternative sources or the economic environment is causing delays in drawing funds from banks)," he added.

In fact, it's been something of a roller-coaster ride for bank credit. Banks added Rs 96,486 crore (Rs 964.86 billion)  of advances in the first half of the year. Since then, banks have grown their loan books by only Rs 479 crore.

After a Rs 6,224 crore (Rs 62.24 billion) dip in credit in the fortnight ended October 12, banks added Rs 6703.9 crore (Rs 67.03 billion) in the following fortnight. In the fortnight ended October 27, 2006, bank credit had increased by Rs 12,000 crore (Rs 120 billion).

With government placing curbs on overseas borrowings by Indian companies in August, banks were expecting companies to turn to Indian banks to meet their domestic credit requirements. About 35 per cent of overseas borrowings is estimated to have been for corporate rupee expenditure.

In the April-June 2008 period, external commercial borrowings amounted to $7.04 billion against $3.95 billion during the same period a year earlier.

"Companies are ploughing back their profits for expansion. It could also be that the entire amount of term loans sanctioned earlier have been disbursed now. They are not drawing on working capital," said V Santhanaraman, executive director, Bank of Baroda [Get Quote].

Consumer loans have also hardly grow, even though the country's two biggest banks, State Bank of India and ICICI Bank [Get Quote], cut interest rates on new home and other retail loans early last month.

SBI, the country's largest lender, reduced interest rates on new home, car, truck and farm equipment loans by 50 to 200 basis points from October 8 as a special offer up to December 31 this year and reduced peak deposit rate by 25 basis points to 9 per cent.

ICICI Bank, the largest private sector lender, lowered interest rates on floating rate home loans by 50 basis points to 11 per cent and on other retail loans by 25 to 50 basis points till Diwali.

However, high asset prices combined with high interest rates, have failed to fuel demand in personal loans.

"October is a busy season. But let us wait for some more time. There is a slowdown in retail sector," said MBN Rao, chairman and managing director, Canara Bank [Get Quote].

According to a banking analyst, with interest rates having gone up by as much as 400 basis points over a year, a reduction of 50 basis points in interest rates by banks as part of a limited period offer, without any change in their prime lending rates, does not signal a lower interest rate scenario.