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Down but not out The poor offtake of retail loans has pulled down credit growth, writes ABHIJIT LELE About five months back, KV Kamath, ICICI Bank’s CEO and MD, had indicated that retail credit might taper off significantly this year. “On the retail front, there will be a modest growth. We were earlier talking of a 25-30 per cent, we will now be talking of a low growth of 10-15 per cent,” Kamath had observed. It appeared then that Kamath was being rather pessimistic. But with three-fourth of the financial year gone, it seems the number could be much lower. Indeed, Kamath himself is now talking of a single-digit growth of possibly 5-6 per cent in retail credit.
Says Anil Khandelwal, CMD, Bank of Baroda, “October and November have seen a muted growth in credit, belying expectations of a pick-up. The overall credit growth remains subdued compared with 2006-07.” Adds Seshadri Sen, who tracks the financial services sector at Macquarie Securities, "The current year will probably see a much slower rise in credit compared with last year.” Sen, however, believes that the second half of the year should be a better time for banks. That may be true because demand from the corporate sector is not flagging. On the contrary, as T S Bhattacharya, managing director of SBI, points out, there is definitely demand from corporates, especially because the new external commercial borrowing norms have forced companies to look for funds in the domestic market. “However, banks need to find matching liabilities for some of the longer-term assets. Also not all the projects are entirely risk-free,” says Bhattacharya. But the stress lines are becoming increasing visible. As if a slower pace of loan growth was not enough, banks may also have to contend with rising non-performing loans (NPLs). In the six months to September 2007, a good many banks have seen both gross and net NPLs rising. The continuing improvement in the gross NPL ratio that started in the1990s, may just be coming to an end. Banks that have bigger retail portfolios might see more of a deterioration in their assets as the higher interest rates impede borrowers from paying their EMIs on time. For the sector as a whole, there has been an increase in gross NPAs of 2.29 per cent while net NPAs have risen far more sharply by over 10 per cent. Faced with a slowdown in both credit and deposit growth in the first half of the year, several public sector banks such as Punjab National Bank (PNB) have been toying with the idea of requesting the government to revisit the annual deposit and credit growth targets. The chairman and managing director of Punjab National Bank, KC Chakrabarty, is one of those who has voiced his intentions of doing so. He believes a 16-17 per cent growth in deposits and credit would be a reasonable target for this year. In the first six months, the bank has registered only a 7-8 percent growth in incremental credit and deposits. The real slowdown has happened in retail loans. Bank of India Executive Director KR Kamath confirms that the demand for home loans has been sluggish and he feels this is because of the sharp rise in real estate prices as also higher interest rates. “The feedback we’re getting is that customers have postponed their purchases hoping that prices of property and interest rates will correct,” he says. Business Standard • December 2007 |
