The Reserve Bank of India (RBI) has pointed out banks’ disproportionate growth in loans to the commercial real estate sector, the retail segment and the infrastructure sector. Banks have also been found lending heavily to non-banking financial companies (NBFCs).
The banking regulator, however, said there was no evidence of a credit boom in the economy, and that continuous monitoring was required for these sectors as the trend may lead to asset-liability mismatches.
“There were emerging concerns about banking sector stability related to disproportionate growth in credit to sectors such as real estate, infrastructure, NBFCs and the retail segment, persistent asset-liability mismatches, higher provisioning requirement and the reliance on short-term borrowings to fund asset growth,” the RBI said in the Report on Trend and Progress of Banking in India 2010-11.
Bank credit to NBFCs saw 50 per cent growth in 2010-11, compared to the previous year. Loans to the infrastructure sector may moderate, though, since the growth was mainly due to telecom players participating in 3G spectrum auctions. According to RBI data, credit growth to NBFCs on a year-on-year basis in September stood at 46.2 per cent, significantly higher than 18.5 per cent in the previous year, while loan growth to the commercial real estate sector rose 12.6 per cent in September, compared with 7.9 per cent in the previous year.
The data also showed personal loans, or retail loans, increased by 15.2 per cent on an annual basis in September, compared with 8.6 per cent growth in the previous year. Most types of personal loans, such as housing, advances against fixed deposits, advances against shares, bonds and vehicle loans, registered accelerated growth.
“Growth in infrastructure and personal loans raises risks to the banking sector, as these loans may raise asset-liability mismatches. For the same reason, the growth pick-up in commercial real estate loans also deserves attention,” RBI said.
The central bank also said for financial stability, trends that may warrant immediate attention included the possibility of spillovers from increasing financialisation of commodities to financial markets and the interest rate differential, compared to the advanced economies. That could propel funding by the Indian corporate sector, leading to currency mismatches. The RBI also said the rollover risk of maturity of foreign currency convertible bonds may be an issue in need of attention.
|Variation (y-o-y)||Variation (financial yr)|
|Sept 24, ‘10
Sept 25, ‘09
|Sept 23, ‘11
Sept 24, ‘10
|Sept 24, ‘10
Mar 26, ‘10
|Sept 23, ‘11
Mar 25, ‘11
|Figures in % Source: RBI|