Blame it on the government if you want to, but thats not going to undo the fact that the private sector is still on a credit diet
The central banks latest data reveal that April saw private borrowers retire Rs15 billion of debt -their biggest since September 2009. Exclude the amount borrowed for investment in securities & shares of private sector, and net loans paid off by the sector will total around Rs20 billion.
Leading this payback was the manufacturing sector that shredded Rs23 billion worth of debt from their books, as textile businesses reduced their debt by Rs17 billion in April, biggest in the last 16 months.
In a way this sounds logical. Players in the textile industry reaped good profits in the first ten months of the current fiscal year, thanks in part to higher exports; so it makes perfect sense to retire loans.
Meanwhile, consumers continued to pay back their dues with the net outstanding amount of personal financing falling by Rs4 billion in April. Even net borrowing for auto financing, which had turned green in March for the first time since July 2007, dropped by Rs1.5 billion last month.
On an aggregate basis, the fall in net outstanding debt in April comes after six straight months of positive credit growth. While that perhaps shouldn be construed as negative, the slowing pace of month-on-month credit growth since December, nonetheless, is a bit distressing (See graphs).
But since thinking positive is the latest fad in clichés; this credit diet will hopefully force businesses learn how to operate on a cash basis, resulting in lower consumption and higher savings.
The implication is similar for households as well, because when cash constraints purchasing power, consumers tend to avoid impulsive buying, potentially leading to higher savings.