• PAGE ONE
• INDEX
• HOME

Industrial slump begins to impact credit offtake

Our Bureau

KOCHI, July 20

WITH the steep fall in industrial production to 2.7 per cent in April, alarm bells have begun to ring for the banking sector.

The squeeze on credit offtake has begun to bite and there is consternation among banking circles as non-food credit has turned negative during last month.

``Big ticket lending has virtually come to a halt but for syndications for large infrastructure projects which are few and far in between,'' Mr K.P. Padmakumar, Chairman of Federal Bank, said.

With the stock markets in turmoil, the equity route to corporates both for expansion as well as for new greenfield projects have virtually dried up, the bankers said.

As the debt-equity ratio becomes increasingly unfavourable, no major corporate wants to invest in any project.

According to figures released by the Reserve Bank of India, offtake of non-food credit has become negative amounting to Rs 3,126 crore by June 29. This implies that there are hardly any takers for fresh credit even as corporates are struggling to repay t heir earlier advances.

Even as recently as April, the trend was relatively positive with credit to the non-food sector remaining positive. Yet, the industrial sector fared badly during the period. The future could be a lot more bleak, the bankers warned.

Yet others pointed out that there was sufficient cause for concern, but not for alarm. While conceding that the credit offtake has virtually ground to a halt, Mr A. Sethumadhavan, Chairman of South Indian Bank, said he was still optimistic. ``The first q uarter results are invariably sluggish, but this year the credit offtake has been exceptionally bad,'' he said. However, a wait-and-watch situation prevails to see whether the economy and the industrial sector rebounds in the second quarter, as has been the case in earlier years.

On a year-to-year basis, total credit offtake has plunged to less than one third of the levels that prevailed one year ago. And the bankers see no way of reviving the demand for credit.

Pointing out to the dismal performance, they said falling interest rate regime would in no way spur credit offtake, industrialisation and growth. The Government will have to address the uncertain stock market conditions and wayward demand side to revive industrial growth.