The robust credit pick-up in the fourth quarter of 2009-10, which helped the banking system to top central bank’s credit growth projections for the financial year, was primarily driven by retail loans, but credit flow to the commercial real estate sector fell drastically following an increase in provisioning norms last year.

According to the Marcoeconomic and Monetary Development Report of 2009-10 released by the Reserve Bank of India (RBI) on Monday, the share of personal loans, which includes education, home, consumer durable loans, among others, was 6.5 per cent in incremental non-food credit as on February from -0.2 per cent in October of 2009.

Within the retail segment, education loans logged an impressive growth of 30 per cent, while housing loans grew by 8 per cent. Contraction in sub-sectors of retail loans such as consumer durables and loan against shares were also moderated.

“Disaggregated data on sectoral deployment of gross bank credit show improvement in credit growth to all major sectors such as agriculture, industry, services and personal loans from November 2009 onwards,” RBI said.

Incremental credit in absolute terms during the fourth quarter was highest in two years, RBI said. The revival of credit flow, which started in November, resulted in non-food credit to log a growth of by 16.9 per cent in 2009-10, higher than central bank’s projection of 16 per cent.

On the other hand, loan growth in the real estate sector decelerated sharply during the one-year period ending February. According to RBI data, credit growth fell to 0.9 per cent in the year ended February 26 from a high of 58 per cent in the year ended February 26. 2009. This is primarily because provisioning requirement for advances to the commercial real estate sector was hiked from 0.4 per cent to 1 per cent during the second quarter review of the monetary policy in October 2009.

Though the revival of credit demand in the banking system helped private sector banks to improve their credit flow compared to the previous year, however, loans portfolio of foreign banks contracted.

The revival of credit demand from the private sector has resulted in a slower increase of banks’ investment in securities eligible for maintaining statutory liquidity ratio (SLR) requirements. Banks’ investment in SLR securities increased 18.5 per cent (y-o-y) as on March 26, 2010, compared with 20 per cent a year ago.

Banks’ holdings of SLR securities were 28.8 per cent of their net demand and time liabilities, which were only marginally higher than 28.1 per cent at end-March 2009.

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