Banks at it again, disburse a third of FY15 loan in last 15 days

Loan growth shoots up to 12.6% from 9.5% in the span of a fortnight

Banks have turned a deaf ear once again to several warnings by the regulator, as well as the government, for avoiding quarter-end window-dressing of their balance sheet.

Reserve Bank of India (RBI) data show banks disbursed Rs 2.66 lakh crore worth of loans during the last fortnight of 2014-15, which ended on April 3. This is almost a third of the year's total loan growth of Rs 7.66 lakh crore from the sector.

This enabled loan growth to reach 12.6 per cent for the entire financial year. Till the previous fortnight, loan growth was 9.5 per cent, the lowest in two decades.

Deposit mobilisation, from both retail and corporate customers (known as bulk deposits), was also healthy. Banks mobilised Rs 3.25 lakh crore of deposits in the last reporting fortnight, resulting in deposit growth of 12.8 per cent for the full financial year.

“A sudden pick-up in loan disbursement is the usual seasonal factor in the last fortnight of every financial year, due to the last-mile effort by banks to shore up their balance sheets. This will not give them much benefit in terms of higher net interest margins, as these are likely to be low-yielding short term loans,” said Rupa Rege Nitsure, group chief economist, L&T Financial Services.

The mad rush to increase the balance sheet size during year-end is mostly evident with public sector banks (PSBs), which scramble to meet the year-end target given to their owner at the beginning of the year.

According to a Canara Bank executive, there was a spike at the end of the quarter as clients had fully drawn their limits. “It does not reflect any sharp upturn in credit demand. There will be a certain deleveraging in the next few fortnights. There is also an element of banks becoming aggressive at year-end to shore up the balance sheet.”

Loan demand was sluggish in the financial year, amid a slowing economy in which interest rates stayed high. It was only in January that the central bank reversed the interest rate cycle, cutting the policy rate by 25 basis points, followed by another cut of the same magnitude in March.

Banks, however, only responded to RBI’s rate reversal call this month, with State Bank of India (SBI), ICICI Bank, HDFC Bank and Axis Bank reducing their base rate, the benchmark to which all loan rates are linked. While some of the smaller private banks have also reduced their lending rate, no PSB has done so, apart from SBI.

Experts said loan demand might continue to remain weak in the current financial year. “FY16 might not be much different from FY15, given the weaknesses in local and global demand. The government's concerted efforts in the infra space will take some time to change the ground reality. Industry will recover at a modest pace, given the macro headwinds,” said Nitsure.