Public banks may raise credit growth target

Public sector banks are likely to revise their credit growth targets for the year by around 20 per cent after the government today asked them to step up lending to boost economic activity. But bankers said meeting the revised targets may be difficult as the demand for credit has dropped.

The public sector banks, where the government is the majority shareholder, are already complaining of having to take on the additional burden of lending as private and foreign banks have slowed down fresh approvals for corporate as well as retail loans. “A part of the problem has to do with the problems in their home country. The other is the higher delinquency levels for Indian private banks which went out of the way to extend loans over the last two-three years,” said a senior executive at a public sector bank.

According to the latest data from the Reserve Bank of India (RBI), credit growth has declined consecutively during the last three fortnights. Credit flow grew by 2.6 per cent in fortnight ended November 7 and then slowed down to 1.2 per cent (for the fortnight ended November 25), 0.4 per cent (December 5) and 0.1 per cent (December 19).

Talking about credit growth, State Bank of India Chairman OP Bhatt said the third quarter (October-December) of the 2008-09 financial year was a little flat for SBI.

Left with little choice following the statement from the government, public sector banks said they were willing to extend loans. “It is (increasing target) an enabling provision for which we are ready,” said Bank of India Chairman and Managing Director TS Narayanasami.

“If the rate of growth is to be maintained, credit flow to productive sectors should continue,” added Allahabad Bank Chairman and Managing Director KR Kamath.

In a statement issued today, the government said it would closely monitor, on a fortnightly basis, the provision of sectoral credit by public sector banks.

During the nine months up to December 2008, most banks went slow on new home loans, and normal targets also have not been met, said a source. Though public sector banks have framed a new scheme to sanction home loans up to Rs 20 lakh at 9.25 per cent interest, bankers said, it will be difficult to meet revised targets when the economy is in the grip of slowdown.

Pointing to the divergence in the views of the government and RBI, a board member of large public sector bank said: “The RBI is signaling caution by asking us to price the risk appropriately and ensure that quality enterprises continue to get funding. That is the right focus.”