Slower credit growth impacts industrial activity: Assocham

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New Delhi, Sep 9 (UNI) The decline in the credit growth of the country's banking system has adversely affected the credit disbursements in key sectors like mining, construction, petroleum, gems&jewellery and textiles, Assocham Eco Pulse (AEP) said today.

The AEP Study on ''Trends of Industrial Deployment of Gross Bank Credit'' for FY 2007-08 analysed the credit disbursements among 20 sectors like mining and quarrying (including coal), wood and wood products, petroleum, coal and nuclear fuels, rubber, plastics and their products, gems and jewellery.

Due to the Reserve Bank of India's tight monetary policy, the credit growth has declined to 21.6 per cent in 2007-08 from 27.9 per cent in 2006-07.

The study also revealed that credit allocation to the mining and quarrying sector, including coal fell from Rs 3,558 crore to Rs 2,912 crore during FY08.

In growth terms, the sector witnessed a fall of credit disbursements to 37.8 per cent in 2007-08 from 85.8 per cent in 2006-07.

The woods and woods products witnessed the steepest decline in the deployment of gross bank credit from 92.9 per cent in 2006-07 to six per cent in FY08.

Despite a rise in the gross bank credit from Rs 6,667 crore in FY 2006-07 to Rs 8,328 crore in the last fiscal, the construction industry saw a fall in the credit growth from 50.1 per cent in FY 2006-07 to 41.7 per cent in FY 2007-08 reflecting the plans of the real estate developers postponing their investment decisions.

The companies in the petroleum, coal and nuclear fuels sector have been incurring losses due to continuous rise in the fuel prices and deferred their expansion plans.

The sector witnessed a decline in the credit disbursements from Rs 10,736 crore in FY 2006-07 to Rs 5,852 in FY 2007-08 crore- a dip from 42.7 per cent to 16.3 per cent.

Tight monetary policy and rising interest rates have affected the credit allocation of the gems and jewellery sector. The sector witnessed a decline in credit off take to Rs 1,145 crore in FY08 from Rs 3,291 crore in FY07 .

The annual growth rate of the sector was 16 per cent in FY07 which has declined to a mere 4.8 per cent in FY08.

''The fall in the gross bank credit has severely impacted the industrial activity. With the hikes in the policy rates, the banks are left with no option but to hike the lending rates which has led to slower bank credit and slower growth,'' said Assocham President Sajjan Jindal.

After a robust credit growth of the engineering sector at 26.2 per cent in FY 2006-07, the sector saw a decline in the credit disbursements in FY 2007-08.

Credit allocation fell from Rs 9,148 crore (FY07) to Rs 8,416 crore (FY08).

With rising interest rates and steep rise in the raw material costs, the textile sector witnessed a decline from Rs 20,499 crore in FY 2006-07 to Rs 16,964 crore in FY 2007-08.

The hardening of the rupee thereby hitting exports in the last financial year has led to a decline in the gross bank credit from 35.1 per cent in 2006-07 to 25.1 in FY 2007-08.

On the contrary are the sectors like infrastructure and cement and cement products. Credit allocation to the infrastructure sector has increased from 30,122 crore in FY07 to 59,321 crore in the last financial year- an increase from 26.7 per cent to 41.5 per cent.

The banking sector also witnessed growth of credit from cement and cement products industry. The credit disbursements grew by 30.9 per cent from 7,136 crore in FY 2006-07 to 8,617 crore in FY 2007-08.

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