Bank borrowings in full swing

Considering that the RBI has raised the repo rate — its key policy rate at which it lends to commercial banks — by 100 basis points over the past one year, it was expected that bank’s borrowings would have taken a bad hit. The inter-bank borrowing rates or the call money rates have also more or less remained in a narrow band around the repo rate indicating that this market too has been consistently tight. The pace at which banks borrow is an indication of the pace at which they lend, which further indicates the pace at which consumption demand is growing. This is especially true considering that overall bank lending to the commercial sector decelerated from a growth rate 32.2 per cent in 2005-06 to 25.4 in the last fiscal. The broad money supply grew at stable rate of 21 per cent, which was in tandem with those in the preceding years. The report attributed the stable rise in part to the 42 per cent rise in net foreign exchange assets of the banking sector.

Interestingly, according to the report, the sectors, which saw a sharp surge in bank lending, were those which were expected to be hurt the most by a higher cost of borrowing — industry and infrastructure. Bank lending to industry in the last fiscal grew by a whopping 52 per cent while that for infrastructure grew 42 per cent over the previous year.

The report also suggested relaxing the restrictions, which were put on external borrowings by the corporate sector last year owing to high money supply in the economy. “It may be time to review the temporary restraints placed last year,” it said.