Govt banks cut down loan book in Q1

Bank of Baroda reduced its loan book by Rs 7,000 cr in April-March, while for Union Bank of India reduction was Rs 9,000 cr

Large public sector banks have reduced their loan book size in the first quarter of the current financial year as compared to the previous quarter mainly due to cautious lending practices amid lack of demand from large corporate houses.

Bank of Baroda – the second largest lender of the country –reduced its loan book by Rs 7,000 crore in the April-March quarter while for Union Bank of India, the reduction was Rs 9,000 crore.

“The loan book size has come down by Rs 9,000 crore as compared to March. There is no credit demand from the corporate sector. As a result, we could not earn interest income as expected,” said D Sarker, chairman and managing director of Union Bank of India. The bank’s net interest income saw a marginal growth of 4.8% to Rs 1910 crore in the first quarter of the current financial year.

With economic activity remained muted, the Reserve Bank of India (RBI), has projected a loan growth of 15% for the current financial year. Bank loans grew by 14% during the last financial year.

Poor loan off take has also impacted the net interest margins of the banks.

According to Bank of Baroda’s chairman and managing director S S Mundra, the bank's cautious approach to lending saw domestic net interest margin dipping to 2.84%, from 3.22% last year.

 “The contraction of loan book is normal given the current environment and in some cases it has been consciously done.

Although there is no blanket ban on lending to any particular sector, we will be cautious in some sectors, such as thermal power, for instance, unless the coal linkages are in place,” said Mundra while adding that the bank will try to improve its margin to 3%, going ahead.

Similarly, Union Bank ‘s NIM dropped to 2.63% in Q1 as compared to 3.01% during the same quarter of the previous year.

“Though we have reduced our bulk deposits but the full effect of reduction in cost of deposit would only be available in the coming quarters. In addition, base rate reduction in February has also impacted the margins,” said Sarkar.

However, Union Bank is expecting loan growth during the festival season which will start by the end of the quarter and expect to clock a credit growth of 16% in 2013-14.

Kolkata-based government-owned lender Allahabad Bank, which was also seen contraction in loan book, is seeing signs of a pick-up in credit demand,

"The first quarter is always flat. But there are a number of (loan) proposals with us. The credit demand is looking good. We are seeing good demand from sectors like retail, SME, textile, pharmaceuticals, food processing. There is also (loan) demand from a section of the steel industry, like the TMT bar makers. We expect our credit growth to be in the range of 16-17% in the current financial year. We aim to have a loan portfolio of at least Rs 1,55,000 crore by the end of this (financial) year," Shubhalakshmi Panse, chairperson and managing director of Allahabad Bank, told Business Standard.