Credit growth still slow, but bankers see revival

Credit growth still slow, but bankers see revival
Financial Express, November 5, 2009, Page 1

fe Bureau, Mumbai

One month into the fiscal’s second half and the slow credit off-take in the banking sector appears to belie early signs of economic recovery. Off-take of bank credit grew below 10% up to October 23--the sharpest slowing in its expansion in 12 years. Analysts say the decline is primarily because of a continued sluggishness in the demand for loans, rather than the bankers’ reluctance to lend. Many of them see a pick-up in the remaining months of the financial year.

According to RBI data, credit growth stood at 9.66%, or Rs 2,52,585 crore, on a year-on-year basis through October 23, against 10.75% recorded up to October 9. Deposit growth has also fallen further to 19.02%, or Rs 6,63,819 crore, in the same period, against 19.98% up to October 9. For the first time, bank loans in absolute terms also dropped by Rs 21,750 crore in the fortnight ended October 23. Loans had shown an increase of Rs 17,160 crore in the fortnight ended October 9.

Bankers have attributed the further fall in credit growth to the slowdown in overall credit demand from the manufacturing sector, which is reflected in the decline of commodity prices and drawdown of inventories. Corporates were able to access non-bank domestic sources of funds and external financing, which had almost dried up during the crisis, at lower costs.

“A significant amount of bank finance has gone to the corporate sector through banks’ investments in units of mutual funds. Banks have also reined in credit to the retail sector due to perceived increased risk on account of the general slowdown,” noted a research report from Crisil.

As on August 28, though the growth in bank credit to agriculture increased sharply to 25.6% from 18.6%, credit to the housing sector decelerated to 5.4%, compared with 12.4%.

Credit growth to industry slowed to 17.9% from 32.9% last year. However, while credit growth remains slack, bankers say they are slowly seeing a pick-up with the start of the busy season. “We have sanctions worth Rs 26,000 crore in the pipeline. Our retail and SME credit is growing, and we hope to see some improvement in credit growth in the next six months,” said Bank of India CMD Alok K Misra.

Dena Bank CMD DL Rawal concurred. “We have huge sanctions of Rs 11,000 crore to be disbursed to various sectors like steel, infrastructure, cement, telecom and power, of which we have already disbursed Rs 2,000 crore during the quarter,” he said, adding that his bank had seen growth of 15-16% in the housing segment.

However, speaking to FE after the credit policy review last week, RBI governor D Subbarao said after discussions with bankers, RBI had reduced the credit off-take target for banks. The central bank had noted that credit growth is unlikely to meet the 20% target, but projected a growth of 18%.

At the same time, aggregate deposits of scheduled commercial banks are projected to grow by 18%. However Subbarao had urged bankers to step up their efforts towards credit expansion while preserving credit quality, which is critical for the revival of growth.

Crisil, a subsidiary of S& P, believes credit growth will pick up in the fiscal’s remaining months, as there are signs of a revival in the economy with higher IIP numbers. Crisil expects overall credit growth at 16-18% in 2009-10, against 17.3% in 2008-09.