ICICI cut lending to realty in 2009-10, but many didn't

Bank loans to the ‘sensitive sectors’ of real estate and capital markets rose in 2009-10 at the slowest pace in at least four years, as some lenders such as ICICI, Canara Bank, Union Bank of India, Bank of India and Jammu & Kashmir Bank reduced lending to these.

Bank loans to these sectors grew at 12.3 per cent in the year ended March 31, compared to 14.2 per cent in the year to March 2009. ICICI, the largest private sector bank, cut its lending to real estate by 17 per cent and to capital markets by almost 10 per cent, the data from banks show.

Bank lending to these sectors rose 31 per cent in 2007-08 and 43.6 per cent in the year to March 2007.

Almost 90 per cent of the ‘sensitive sector lending’ in 2009-10 was to real estate, while the rest went to capital markets. In the former, while lending secured by mortgages of residential property increased by 20 per cent, those secured by mortgages of commercial realty fell 5.8 per cent. The capital market exposure increased 23.7 per cent, compared to the 12.3 per cent growth for real estate.

Public sector banks, led by State Bank of India, posted 14.9 per cent growth in sensitive sector lending, compared to six per cent growth for the private banks. Among these banks, lending by State Bank of India, IDBI Bank, Bank of Baroda and Syndicate Bank to these sectors rose between 34 and 46 per cent. Among private banks, YES Bank topped as the lender, followed by IndusInd Bank, Development Credit Bank and HDFC Bank.

The exposure of ICICI Bank to the sensitive sector declined by 9.6 per cent, or by Rs 7,980 crore, in 2009-10, as the global financial crisis reduced liquidity in the banking system. The bank’s exposure to real estate fell by 16.8 per cent, as it reduced its exposure to residential and commercial mortgages. However, ICICI Bank improved its exposure to the capital market segment, through direct investment in equity and giving advances for initial public offers.

If one excludes ICICI Bank from the group of lenders, lending to the sensitive sectors grew by 16.7 per cent in the year to March compared to 19.7 per cent a year earlier. Sensitive sector lending by 10 banks rose by over 30 per cent each, while 14 banks posted a decline and four reported single-digit rise.

Nevertheless, listed banks’ exposure to the sensitive sectors has crossed the Rs 5-lakh crore mark, at Rs 5.55 lakh crore. Lending to the residential sector accounted for 53 per cent, up from 47.5 per cent, while commercial mortgages got 23.3 per cent, down from 27.7 per cent.