Private sector credit picks up steam in May with Rs.61bn fresh disbursement

• However, pockets such as small business loans still a far cry as banks choose to stick with bigger clients

Credit to the private sector by licensed commercial banks in May increased by a satisfactory Rs. 60.7 billion, turning around from the temporary slippage in April caused due to the extended holidays in the festive filled month.
The growth in private sector credit has not been a consistent journey since the pick-up in credit first began in June last year in a fresh credit cycle.

However, the quantum and the speed with which it has been happening have failed to impress the Central Bank, given the speed at which they were cutting the rates.

The cumulative credit so far in the first five months of the year has been Rs.71.5 billion while the Central Bank has delivered 700 basis points worth of rate cuts since their rate cutting cycle first began in June last year.
The report has made the next rate decision by the Central Bank scheduled for later this month still a toss-up as their success in getting the banks to grant credit to the real economy has been mixed.

However, the Central Bank could paint a different picture for June data for private credit.
A better report for June could prompt the members of the rate setting committee of the Central Bank to hold any rate decision as it could give confidence that the previous cuts are working.
The bad report or advance data could tilt them towards another 50 basis point cut.

The inflation could be a concern as they do not under any circumstance want to scuttle the current milder inflation readings.
As the future inflation reports are going to lose the favourable base effect from last year, perhaps nudging the inflation towards their mid-term target of around 5.0 percent, it is wise for them to maintain the rate at the upcoming meeting.

But they are also under pressure to do more to prop up growth and help fund inflows to the real economy.
The banks are still reluctant to grant facilities, especially to the small businesses. They stick with their prime customers as they know it is a safe bet.
This could hold off the broad base growth in the economy which the Central Bank and the government would want to see.