Non-food Credit 20.1% to.40 lakh crore during the Fortnight ended 9 September 2011

Non-food credit,comprising loans to individuals,farmers and businesses rose Rs 29,598.79 crore,or 20.1%,to Rs 40 lakh crore during the fortnight ended 9 September 2011.

On a year-to-date basis,growth in non-food credit stood at 3.3% compared with 4.3% in the same period in 2010. Inflation forced 12 interest rate increases since March 2010. Companies claim their output growth collapsed as higher interest rates deter consumers from buying.The index of industrial production (IIP) slowed to 3.3% in July from 8.8% in June 2011. However,excluding capital goods,the growth of IIP was higher at 6.7% in July compared with 4.4% in June.

Analysts mentioned that considering money was expensive, the central bank in a bid to curb demand was killing growth. Some of the loan growth numbers could be unpaid interest,which is piling up as loans in banks books as it often happens when business growth is slow.

Advance tax numbers for the September quarter for the top 100 companies have risen 9.9%,indicating a slowdown.Monetary policy makers at the central bank are of the opinion that rising raw material costs and interest charges eroded profitability but did not slow demand. Wholesale price index (WPI) showed that manufacturing prices were rising as companies passed on increased input prices.

Banks followed the central bank in raising rates.About 45 scheduled commercial banks raised their base rates by 25-100 basis points after the July 2011 review.Consequently,the model base rate of banks rose to 10.75% in August from 10.25 in July.