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but not out
poor offtake of retail loans has pulled down credit growth, writes
five months back, KV Kamath, ICICI Banks 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.
the mortgages market having flattened out, retail credit,
which was clocking a brisk 30 per cent year-on- year (y-o-y)
increase just a year back, is struggling to grow in double
result: banks are seeing their loan books grow at a much slower
rate than they have in a long time.
a hectic three years ( 2004-2007), when credit clocked a smart
30 per cent compounded growth, FY08, it appears, will see
a far more subdued performance.
loan market has been cooling off for some time now; in March,
it was growing at 27.6 per cent y-o-y but the latest numbers
show credit growth at around 23.3 per cent y-o-y, way below
the 30-32 per cent that the sector was averaging last year
at this time.
16-17 per cent growth in deposits and credit would be a reasonable
target this year
K C CHAKRABARTY
CMD, Punjab National Bank
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.
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,
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.
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.
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
were getting is that customers have postponed their purchases
hoping that prices of property and interest rates will correct,