During the first six months of the year credit to private business and individuals from commercial banks rose 74.6 billion rupees, down from 229 billion rupees a year earlier.
The state and loss making state enterprises borrowed 260 billion rupees in the period, keeping lending rates high and crowding out private borrowers.
Such trends are normal following a period of strong credit growth leading to a balance of payments crisis and weak state revenues and are a part of an adjustment process, where private borrowers then stop risky investments from borrowed money and consolidate.
During a previous balance of payments crisis in 2008/2009 private credit turned negative, but this time monthly credit has been positive even in small numbers.
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But the actual credit utilization by private business is higher than bank data suggest. More than 20 billion rupees have been raised through corporate bonds after taxes were cut on listed bonds.
"Private credit growth is lower than what we expect