Real estate pushes up PSU bank lending to sensitive sectors

The Reserve Bank of India's move to choke the flow of credit to sensitive sectors -- real estate and capital markets -- seems to have worked partly for public sector banks with the growth in the flow of credit to these segments dipping to 31 per cent during 2007-08 from 43.6 per cent during the previous financial year.

But the growth in credit flow from the state-owned banks to the sensitive sectors stayed higher than the rise in non-food credit of the scheduled commercial banks, which rose 22.3 per cent during 2007-08, compared to 28.5 per cent in FY 07. 

REAL RISK Exposure to sensitive sector (Rs crore)
	2006-07	2007-08
Real estate	1,63,934	2,08,926
Capital market	14,979	25,413
Sensitive sector	1,78,913	2,34,339
Growth (%)*	43.60	30.98
Excl. sensitive	9,19,746	11,42,618
Growth (%)*	28.84	24.23
Total advances	10,98,660	13,76,958
* Growth change over pervious year

The steeper growth in advances to the sensitive sectors has meant that their share rose to 17 per cent of the total bank credit of Rs 13,76,958 crore at the end of March 2008. The share of advances to sensitive sector at the end of March 2006 was 16.3 per cent and was at 14.9 per cent in 2005-06.

A part of the reason for higher real estate exposure is the classification of big-ticket home loans "" upwards of Rs 20 lakh till March 2008 "" in this bracket.

While private banks have scaled down their retail lending operations, partly due to rising defaults, the public sector players have stepped up the pace.

Though most of them are seeking higher upfront payment, State Bank of India executives claim that they are the biggest lender in the segment as far as fresh loans are concerned.

The lending by public sector banks to the non-sensitive sectors moved up at a slower pace of 24.2 per cent in 2007-08 compared to 28.84 per cent in 2006-07. This indicates that there is more demand for credit from sensitive sectors while non food credit growth has tapered down mostly on account of current demand recession.

A majority of the incremental lending "" 89 per cent "" went to real estate. The share of capital markets was 11 per cent or Rs 25,413 crore of the advances to sensitive sectors. The exposure of the banks to capital markets has increased by 70 per cent, compared to 27 per cent for real estate.

The data covered 20 of the 28 PSBs whose balance sheet is available. Exposure to real estate covers housing and commercial real estate loans and lending to National Housing Bank and housing finance companies.

Capital market exposure includes investment in equity, equity-oriented mutual funds, venture capital funds and bridge loans' to companies against expected equity flows/issues and financing to stockbrokers for margin trading.

State Bank of India and its associates "" State Bank of Bikaner & Jaipur, State Bank of Hyderabad and State Bank of Travancore "" have more than doubled their exposure to capital markets. SBI's net exposure to the sector rose 180 per cent to Rs 9,110 crore from Rs 3,266 crore in previous year, which accounts for 35 per cent of the total banking sector lending to capital market.

Central Bank has the highest exposure to capital markets "" almost 29 per cent of its net worth "" followed by Union Bank (24.77 per cent), Syndicate Bank (20.61 per cent), State Bank of Travancore (20.54 percent), PNB (20.30 per cent) and SBI (18.58 per cent). As per the new RBI norms, the aggregate exposure of a bank to the capital markets should not exceed 40 per cent of its net worth.

Only SBI and Syndicate Bank have sanctioned loans to companies against the security of shares, bonds or debentures for meeting promoter's contribution to the equity of the new companies. SBI's exposure was around Rs 2,721 crore whereas in case of Syndicate Bank it was Rs 393 crore.