KARACHI, Nov 28: The flow of bank credit towards the textile sector has slowed down which is the real reason for overall decline in the private sector credit off-take. “The textile sector is not borrowing aggressively though the cotton arrival is at the peak,” said a banker.

The slowdown of the textile sector has already started producing negative impact as the industrial production fell sharply in the beginning of the new fiscal 2005-06.

The first quarter credit off-take by the private sector fell by over 40 per cent reflecting a slow growth. Bankers said that the textile sector, which has enough raw cotton in its storage, was playing with the cotton prices and making effort to bring them down.

Bankers said that the textile sector should have borrowed additional Rs15 to Rs20 billion till the end of November. Bankers who deal with the textile sector were not aware about the exact borrowing by the sector, but said that the first quarter report showed very low flows of liquidity towards the sector. October and November are the traditionally high credit consuming months because of higher arrivals of cotton in this period.

“We should not compare the credit off-take of the last year by the textile sector because the year had produced record cotton production of over 14 million bales,” said Abdullah Jamil, a textile miller.

Jamil said that the textile sector borrowing would remain lower than previous year as the cotton production was expected to drop by 2 million bales. Last year the private sector consumed record credits and textile sector was the highest among the borrowers.

The textile sector had borrowed Rs88.2 billion for the year ending June 2005 which was 30 per cent higher than the preceding year. It was the highest borrowing after personal loans which were Rs90 billion.

The slow off-take would also hurt the income of banks which earned very high profits last year. However, analysts said that the slow growth of credit flows towards the private sector was also the impact of State Bank’s tight monetary strategy.

The State Bank has been trying to curtail the inflation and keep the inflation within its target of 8 per cent for the current fiscal. During the last four months, the monetary growth has been almost zero.

However, some analysts believe that lower credit off-take by the private sector could hamper the government’s effort to achieve higher economic growth. The State Bank in its annual report has predicted a lower than target economic growth.

Last year textile was the largest participant in the growth of large-scale manufacturing sector (LSM) and posted a 24.7 per cent growth to achieve the over all 15.6 per cent increase.

If the textile production slips from the higher growth of over 24 per cent, it would certainly hit the economic growth as the sector alone earns over 61 per cent exports proceeds for the country.