'Credit demand in FY14 expected to pick up'

After sluggish credit demand growth this year, bankers see some marginal improvement in 2012-13 from sectors engaged in manufacturing, such as engineering, gems and jewellery and automobile ancillaries. Besides, they expect retail credit demand growth to continue.

“The industry might grow 17-18 per cent in terms of credit next financial year. Retail growth will continue driven by the housing loans. Interest rates may also fall another 50 basis points next year. This financial year, credit growth will be 15-16 per cent,” said N Seshadri, executive director, Bank of India.

Bankers feel there is now some possibility of projects coming up, with the expectations that the government will be able to sort out most of the issues pertaining to infrastructure.

GOOD SIGNS

• Bank credit will grow on the back of higher gross domestic product growth
• Bank credit has been a multiple of 2.5-3 times’ real GDP growth
• Government addressing infrastructure bottlenecks will also help
• Further fall in lending rates will make loans cheap

“People do not have specific projects. But at least they are able to see that there is probably some positive action coming up from the government. People are also thinking about some amount of capital expenditure,” said Seshadri.

Reserve Bank of India (RBI) data showed for the fortnight ended November 16, bank credit grew 16.85 per cent year-on-year.

In the second-quarter review of monetary policy on October 30, RBI had revised its projections of bank credit growth to 16 per cent in FY13 from the 17 per cent projected in April and July.

Most economists believe growth in the economy is finally bottoming out and there are expectations of improvement in 2013.

This will be pushed by factors such as domestic structural reforms, normalisation of agricultural output, improvement in non-agricultural output and a fall in crude oil prices in real terms in the next few years.

“Credit growth is linked to GDP growth. If GDP growth picks up, that will boost bank credit. There are also expectations that the investment cycle, which has slowed, will also pick up next financial year,” said K R Kamath, chairman and managing director, Punjab National Bank.

Public sector banks (PSBs), which did not have a great year on earnings, are expected to see some improvement on the back of loan growth in FY14. Vishal Goyal and Stephen Andrews of UBS Investment Research wrote in a report last week that PSBs offer higher upside in terms of earnings as they are highly levered to a change in the economic cycle and implementation of key reforms by the government.

“Our upside case assumes loan growth of 15-20 per cent as the capex cycle revives in the changed environment and credit costs come down significantly to around 80-100 basis points from the current expectations of 100-150 basis points,” they said.