Bank loans pick up, credit offtake slow

With the busy season approaching and interest rates hardening in foreign countries, domestic loan demand is showing early signs of revival.

According to the Reserve Bank of India (RBI), bank loans have risen 20 per cent this year till now, though credit growth since the beginning of the financial year is still lower than what it was a year before. Banks have disbursed Rs 1.09 lakh crore since April; it was Rs 1.22 lakh crore in the corresponding period last year.

“The overall sense is that lending has improved towards working capital needs. This is the segment that picks up first as recovery happens,” said P Sitaram, chief financial officer, IDBI Bank.

RBI data shows bank advances grew by Rs 43,000 crore in the fortnight ended August 12, after reporting negative growth for the earlier part of the second quarter.

More and more corporate bodies had turned towards foreign funding due to the high interest rate differentials but conditions have changed. “There is the dollar crunch and interest rates have gone adverse in Western countries. This has led to increase in credit offtake domestically,” said M G Sanghvi, executive director, Bank of Maharashtra.

Owing to the rise in lending rates, credit growth had slowed since the start of the current financial year. Following this, most banks have lowered their yearly credit growth projections. H S U Kamath, chairman and managing director of Bangalore-based Vijaya Bank, on Wednesday said the bank had trimmed the credit growth target for 2011-12 to 20 per cent from 25 per cent. “We are also taking pre-delinquency measures to prevent the incidence of defaults due to rise in rates," he said at the sidelines of a banking seminar.

Sitaram said IDBI Bank was focusing mainly on lending to priority sector and working capital requirements. Bank of Maharashtra expects 19-20 per cent credit growth for 2011-12. “Despite the downward revision of credit growth targets, the advances’ growth has been smooth, though the coming days do not seem very good,” said Sanghvi.

On the other hand, bank deposits grew 18.4 per cent as on August 12, as compared to the same period last year. Over the fortnight, deposits grew by Rs 10,317 crore. Banks had increased interest rates on fixed deposits by 200-250 basis points across tenors in several rounds over the past six months to attract funds. “Liquidity is comfortable in the banking system, so there may be no need for further hikes in deposit rates,” said Sitaram.