Banks unlikely to achieve RBI's 18% loan growth target

Annual growth in bank advances drops to 17.7% as on November 30.

Loan growth, which has slowed significantly in the current financial year due to high interest rates, may result in banks falling short of the Reserve Bank of India (RBI)’s loan growth projection of 18 per cent for 2011-12.

Annual growth in bank advances slowed to 17.7 per cent as on November 30, compared with 21.4 per cent in March. Banks had given loans worth Rs 2.5 lakh crore till November and would need to disburse an additional Rs 4.5 lakh crore to achieve 18 per cent growth for 2011-12.

“Credit growth this financial year has only been about six per cent so far. So, maintaining the original 18 per cent would be difficult, given we have only four months left,” said B A Prabhakar, executive director, Bank of India. In the last four months of the previous financial year, banks had disbursed Rs 3.6 lakh crore.

RBI is scheduled to announce its mid-quarterly monetary policy review on December 16. “There is a possibility that RBI may lower the credit growth projection in the policy review this week,” Prabhakar said. RBI had revised its loan growth projection to 18 per cent in July, from 19 per cent projected during the annual policy in May.

According to bankers, credit demand remained muted, owing to slowing corporate investment due to high interest rates. RBI has raised the policy rate by 375 basis points since March 2010. After raising the policy rate 13 times between March 2010 and October 2011, the central bank signalled a pause in the rate rise cycle.

“Some old sanctions are being disbursed, but achieving 18 per cent credit growth by the year-end is going to be very challenging, as credit to all sectors is subdued due to slowdown in economic activities,” said Ashok Dutt, executive director, Dena Bank. The government recently cleared three big-ticket infrastructure projects, while more, amounting to Rs 1.7 lakh crore, are expected to be put on a fast-track mode this financial year. “I don't think project clearances would make much of a difference, as the processes may take more than three months,” said a senior official of a public sector bank.

Sajjid Chinoy, India economist, JP Morgan, said, “Credit growth is predictably slowing sharply, and should slow further, as growth and investment continues to moderate. Unless much of the offshore trade finance is brought onshore, in line with European bank de-leveraging, credit growth is likely to fall well below RBI's indicative target of 18 per cent.”