Deceleration in credit growth sharper for state-run banks
The deceleration in credit growth at the end of September is sharper for public sector banks (PSBs) compared to those in the private sector, said Reserve Bank of India’s (RBI) Macroeconomic and Monetary Developments for second quarter review 2012-13 released on Monday.
“At the bank-group level, the deceleration was particularly sharp for PSBs. As PSBs are the largest lenders in terms of credit, deceleration in their credit growth pulls down overall credit expansion of scheduled commercial banks taken together,” said the review. According to RBI, the deceleration in credit growth reflected the slack investment demand, slowing economic activity and, more importantly, deteriorating credit quality, especially in the case of PSBs.
The review also points out that private sector banks, which registered strong credit growth in the comparable period last year, continued to witness a robust credit growth. But the credit growth of foreign banks registered an even sharper deceleration.
There are also concerns on asset quality and this is particularly grave for PSBs. “The ratio of gross non-performing assets (NPAs) to gross advances and the net NPA to net advances that had increased significantly during 2011-12, rose further in the first quarter of 2012-13 across the bank groups. The increases in these ratios were maximum for PSBs, which account for the major part of bank advances,” said the review. It added restructuring of standard assets also increased significantly for PSBs during the first quarter of 2012-13.
According to bankers and experts, the NPA cycle is yet to peak out due to factors like drop in the productivity of Indian corporates, larger proportion of long-term loans, exposure to sectors which are cyclical in nature and aggressive lending to agriculture sector. In fact, bankers and experts are of the view that the stress in assets are expected to continue at least for the next 12 months.
According to RBI, deterioration in assets quality and in the macroeconomic conditions resulted in added risk aversion in the banking sector. This led to a portfolio switch from credit creation to investments in government securities on the back of large government market borrowing.
“The scheduled commercial banks were holding around 28 per cent of their Net Demand and Time Liabilities in Statutory Liquidity Ratio investments at end-September 2012,” said the review.