CARE pegs credit growth below 19%

'Gross non-performing assets to touch 4.3 per cent by March 11'.

In keeping with the moderation in economic growth, bank credit is expected to grow 17-19 per cent annually for the next two years, according to rating agency CARE.

The agency has pegged India’s economic growth (gross domestic product growth) at 5.8 per cent for 2009-10 and 6.2 per cent for the year ending March 2011. The growth in bank credit would be 2.9 to 3.1 times the gross domestic product growth for the next two years, it said.

The Reserve Bank of India has pegged the growth in non-food credit at 20 per cent for 2009-10 and GDP growth at around 6 per cent. The rating agency said bank credit could see an upside since the infrastructure sector could drive demand for funds. Plus, the government’s efforts to support the economy through easy availability of credit could give business to banks, it said.

Referring to the rise in non-performing assets (NPAs), it said the gross NPAs to gross advances might increase from 2.3 per cent at the end of March 2008 to 4.25-50 per cent by March 2011. “We do not rule out the possibility of high NPAs in the banking system which are suppressed under the shadow of restructuring”, it said.

The share of corporate advances (industry plus services) was higher than retail credit in the total loan book, it said. In the current economic downturn, gross NPAs for corporate advances would be higher in magnitude, added the agency.

The bad loans of private and foreign banks will rise more rapidly as compared with public sector banks (PSBs) due to the high proportion of retail credit and extensive restructuring undertaken by PSBs which will defer booking of bad loans.

Though we could see a rise in gross NPAs over two years in percentage terms, it would be significantly lower than previous credit cycles. The lower proportion of lending to stressed sectors, relatively lower corporate leverage, better risk management and recovery by banks would help contain sharp rise in NPAs, it said.