Bank loan numbers for the first quarter confirm the slowdown.

Bank loans continue to grow at a slow pace. Though in absolute terms, loans, in the first quarter of (Q1) 2008-09, have done better than the previous two comparable quarters, the Q1 growth (Y-o-Y) has slowed down for the third consecutive year.

This reflects the impact of monetary tightening resorted to by the Reserve Bank of India (RBI) since the end of 2004 through repo rate -- the rate at which the central bank provides liquidity support to commercial banks, and reverse repo rate -- the rate at which the central bank absorbs surplus liquidity.

The Y-o-Y credit growth has been slowing down in the first quarter for the past three years. This could, in some way, be due to the impact of the monetary tightening resorted to by the central bank by signalling higher benchmark repo rates since October 2005. The central bank has hiked rates by 250 basis points in phases from 6% in October 2005 to 8.5% last week.

According to the latest data released by RBI on Thursday, total non-food credit extended by commercial banks amounted to Rs 23,42,973 crore as on June 20 -- the last reporting Friday of the quarter. This represents an absolute growth of Rs 38,879 crore for the quarter. And it seems to allay fears of a slowdown in credit offtake.

In fact, bankers are not seeing a significant pick-up in credit demand and a significant chunk is believed to be from oil companies to meet their working capital demand, as crude prices are touching new highs.

Also, demand from home-loan seekers, too, is low at such times. Besides, high real estate prices still high in most pockets and northward interest rates have further affected demand for home loans.

But Dena Bank chairman and managing director PL Gairola rules out lack of loan demand. He said that there is some demand across all segments. But some indications would be out only by end-July, when the central bank comes out with its `report card' of the economy in its latest macro and monetary developments.

Typically, loan growth is low in the first quarter of any fiscal and it tends to pick up from the third quarter. In fact, in the Q1 of FY08, bank loans recorded a dip for the first time in many years. This time round, the Q1 growth is the highest in three such quarters.