Note: Figures in paranthesis represent the share in the total non-food credit
Source: RBI- Trend and progress of Banking in India 2007-08 and Macro Economic and Monetary Developments 3rd Quarter 2008-09

RBI, in its Macro Economic and Monetary Developments 3rd Quarter Review released on the 26th Jan 09, made an analysis of where credit was channeled. RBI using inappropriate statistical methodology of Y-O-Y comparisons(as it does not reflect flow of credit during the current financial year) may have smug satisfaction that various sectors got adequate credit and by releasing more than Rs 3 lakh Crore funds for banking system to lend they have performed their duty. But this money is stashed away in Govt securities and reverse repos thus defeating the purpose for which money was released.  Some of the credit was no doubt absorbed by oil and fertilizer sectors. Yet nearly Rs 2 lakh crore were stashed in SLR securities, over and above the requirement, which shows that Banks are ultra cautious. It is an unhappy situation that credit is not extended where it is needed most.

If we analyse the flow of credit from April to mid  December 2008, it is revealing that industry garnered more than half the incremental credit but showed poor results in production, Industrial GDP coming down by half to 5% from 10%. It makes one wonder as to what use this incremental credit of Rs1,47,000 Crore was put to, if it has not resulted in increase in production . In contrast the share of Priority sector incremental advances dwindled from 26% (Rs1,04,5000 crore 2007-08) to single digit of 9.5% (Rs25,300 Crore Apr08-Dec 08). Mandated share in credit being 40%, it works out to Rs 1 lakh Crore. But only about Rs25,000 crore was given as priority sector advances thus diverting the remaining amount of Rs 75,000 crore to Industrial sector and personal loans. Similarly incremental Credit to agriculture sharply declined from 14% in (Rs56,400 Crore) in 2006-07 to 10.8%(Rs 43,260 Crore) in 2007-08 and further to a mere 5.9% (Rs15,843 Crore-Apr-Dec08). Mandated share in credit of 18%  works out to Rs 45,000 Crore thus depriving agriculture a sum of Rs 30,000 crore as credit. This shows that where credit is pumped, production has not increased and where credit is badly needed, credit is blocked. Agriculture and Small industries are starved of credit The Govt and the RBI will do well to mull over this issue and ensure adequate and liberal flow credit to Agriculture and Micro and Small enterprises. The bias towards big industry at the cost of small industries and Agriculture is clearly visible.
Hope that in-charge F.M will drive home the point to bankers in the meeting proposed on 2nd Feb and persuade banks to release funds of Rs 2 lakhs now parked in securities, for production purposes, in the next two months.