The Reserve Bank of India (RBI said that credit flow was reviving and is expected to improve further in the coming months on the back of steps taken by the central bank and the government.
“The momentum is gathering pace... Credit flow is slowly and steadily reviving,” RBI governor Shaktikanta Das told reporters after the post-Budget board meeting that was addressed by finance minister Nirmala Sitharaman.
While latest data showed that credit growth had moderated to 7.1% at the end of January, Das said that from contracting by £13 billion at the end of September 2019, the flow of credit was higher by £27 billion. Similarly, fund flow to the commercial sector was estimated at around £10 billion in September has now risen to around £75 billion. “There is expectation of the flow to improve in coming months due to the steps announced by the government and RBI,” he said. RBI has reduced policy rates five times since February 2018 and Das said that there were indications that banks were passing on the cuts now.
Asked about the £150 billion target for loan flow to the farm sector, Sitharaman said that she was confident of the goal being achieved. “Credit limit has been expanded. I am sure it is based on local ground level requirement...we expect the demand to grow and credit requirements to also meet up with it. I am actually closely monitoring banks and their extension of credit facility particularly to rural areas. So I think we'll be able to meet that,” the FM said.
The RBI governor also suggested that the overall impact of the steps announced in the Budget will not be inflationary. Measures such as higher import duty on a number of products are expected to make these items more expensive. Das, however, said that the main concern was over the fiscal deficit, which the government has handled by “adhering to the principle of fiscal prudence”.
“The good part of the government borrowing is also budgeted to come from small savings. Therefore, I don’t see much of an inflationary impact... Declining crude prices has definitely positive impact on inflation...The main reason for spike in inflation is because of food inflation, mostly milk, fish, and various protein related items. Core inflation has slightly edged up because of revision of telecom tariffs,” he added.
Retail inflation based on consumer price index (CPI) soared to a near six-year high of 7.6% in January, surpassing the Reserve Bank of India's comfort range primarily on account of rising vegetable and food prices.
