SBI expects recent reforms to push loan offtake

Also hopeful that recent action of reding base rate to 9.75% will boost loan growth

State Bank of India (SBI) is expecting that the loan offtake by the industry, especially the small and medium enterprises (SMEs), would increase with the recent reform measures by the government. The commercial bank major is also hopeful that its recent action of reducing base rate by 25 basis points to 9.75 per cent would give a push to the loan growth,said A Krishna Kumar, managing director and group executive (National Banking), SBI.

Speaking to reporters in the sidelines of a corporate social responsibility (CSR) initiative by SBI in Chennai, he said, "From April to August, this year, there was a loan growth in sectors like agriculture, and retail, but borrowing was less in the SME industrial sector. We expect the recent developments could trigger growth in the industry which would result in more loan offtake."

With the economic slowdown affecting the overall sentiments, even the loans sanctioned were not taken by the borrowers in SME sector. "The decrease in borrowing is not only because of the interest rate, but also depending on demand for the products or services from these industries in the market. If the finished products remains unsold, there would not be a requirement for more investment," he said.

The recent reform announcements by the government is expected to bring confidence among the industry and might result in increased borrowings. There is an indication that many borrowers are coming forward for loans, he added.

According to recent reports, the credit growth in banking sector has been facing difficulties due to the economic slowdown. With the loan offtake hit by the market conditions, SBI has lowered its estimates in home loan growth, from earlier 25 per cent to around 20 percent, according to reports. It has also recently announced cut in base rate following the policy announcement by Reserve Bank of India (RBI). The 25 basis point cut is expected to help the Bank to grow its loan book, since a majority of its Rs 6 lakh crore loan book is linked to the base rate mechanism.

At present, the interest rate for home loans of up to Rs 30 lakh home loan is 10 per cent and the rate for loans above Rs 30 lakh is at 10.5 per cent. SBI currently has a market share of 25-26 per cent in home loan segment, said Krishna Kumar.