Acknowledging that credit growth has moderated in a couple of months,Reserve Bank of India (RBI) deputy governor Rakesh Mohan today attributed the trend to risk aversion of the private and foreign banks. While credit growth has slowed down in the past couple of months,that of public sector banks was about 28 per cent year-on-year. Overallm it was around 22 per cent,Mohan said at a seminar here.
“What has happened (is) very interesting in terms of risk aversion. It’s private sector and foreign banks whose credit growth is very very low,” he said. Noting that all Indian banks have capital adequacy far in excess of regulatory requirement,he said it is a fact that banks so far remain profitable without exception.
Growth in advances by public sector banks are high as these entities are subject to government’s exhortation. Besides,the effect of monetary policy is higher on these entities,he said. “So the credit growth so far has been relatively healthy but it is correct to say you have to watch how much risk aversion would be observed and how much it (risk aversion) is rational,” he said.
“What is it we should be doing from policy point of view to preserve the financial systems’ health while helping the real economy not to go down,” he added. Mohan said even in the backdrop of the Lehman crisis money markets in the country are behaving normally in terms of volume.