October 24, 2009

The Indian banking industry’s slowing loan growth, which has dipped to a 12-year low, may squeeze the central bank’s room for manoeuvre during the quarterly monetary policy review. Still, bankers and companies say there are signs that the trend is changing.Loan growth until the first week of October slowed to 10.8% from 29.5% a year ago, compared with the central bank’s estimate of 20% expansion for all of fiscal 2010.

Sluggish credit growth will be a key factor for the Reserve Bank of India (RBI) to consider before taking a call on reversing its accommodative policy. Had loan growth been along RBI’s estimated lines, there would have been a clearer case for a rate hike, say economists. RBI will make its quarterly announcement on 27 October.