Apr 01, 2013 (LBO) – Heavy state borrowings from banks crowded out credit to private business to a 44-month low in January 2013, despite the monetary authority cutting policy rates, official data show. Commercial banks loaned 9.7 billion rupees to private borrowers in the month, the lowest since May 2010, when 7.2 billion rupees was loaned to business. In the year to January 2013, credit to private borrowers was up 15.5 percent to 2,368.1 billion rupees.
But credit to the state from domestic banking units rose by 55.4 billion rupees to 689.4 billion rupees, up 27.6 percent from a year earlier.
Total credit to the government from the banking system rose by a slower 42.1 billion rupees to 1,087.3 billion with central bank credit (stock of printed money outstanding) falling to 266.3 billion rupees in January from 634.0 billion rupees a month earlier.
Killing central bank credit reduces the outflow of dollars from the economy compared to the inflow, allowing foreign reserves to be built up and the economy kept stable