Indian banks may struggle to meet their priority sector lending targets this financial year despite improvement in farm credit disbursements, feel analysts.
In October, 2012 credit growth remained weak with slowdown particularly pronounced in the industrial and services sectors. While growth in personal loans segment was stable, agri credit witnessed sharp increase.
Farm credit growth was 22.9% for the 12 months ending October, 2012 compared to 7.1% in the corresponding period last year. Compared to this credit growth to industrial sector and services sector fell by 790 basis points and 630 basis points, respectively during this period.
However, analysts still believe that meeting priority sector lending targets will be a challenge for most banks as credit flow to small borrowers remained muted.
"Despite strong agri growth, total priority sector credit growth (12%) lags overall system growth...Lending to smaller borrowers, across industry and services, has been weak. Consequently, banks will likely struggle to meet their priority sector targets. Overall, this data support our cautious view on Indian banks," Anish Tawakley and Jatin Mamtani, analysts with Barclays, said in his note to clients today.
The industrial sector lending growth was concentrated on stressed sectors like power, roads, metals, textiles, mining and gems and jewellery. "Banks appear to be curtailing credit growth among small and medium sized industries," the analysts noted.
The year-on-year in bank's overall loan growth was 15.9% as on October 5, 2012. It was below the Reserve Bank of India's forecast of 17% growth in bank credit during this financial year.
