SBI chairman hints at moderate credit growth

State Bank of India (SBI) Chairman O P Bhatt today said credit growth in 2006-07 would be "moderate" compared to the sharp rise of over 31 per cent in 2005-06.

SBI, the country's largest bank, and ICICI Bank, the second largest bank, have already seen a slowdown in growth in 2006-07. The quarter-on-quarter expansion in SBI's advances in the first quarter of 2006-07 was just 2.36 per cent (Rs 6,181 crore) against 9 per cent (Rs 18,149 crore) a year earlier.

In the case of ICICI Bank, the quarter-on-quarter increase in advances in April-June 2006 was 0.69 per cent (Rs 1,021 crore) against 13 per cent (Rs 12,082 crore) a year earlier.

A research carried out by Crisil, a rating agency, said the level of liquidity in the banking system at current estimates was expected to support a credit growth of about 24 per cent, which was closer to the 20 per cent target set by the Reserve Bank of India (RBI).

Bhatt said the bank would be able to achieve a deposit growth of 16-17 per cent in 2006-07 and interest rates on both deposits and loans would not rise further at least in the short term. "There has been a rise in rates and there cannot be any further rise for now," he said.

SBI's central board of directors is meeting tomorrow to review the interest rate and liquidity scenario. The bank board's executive committee had on August 3 approved the asset-liability committee's decision to hike PLR by 25 basis points to 11.50 per cent.

In 2006-07, the incremental increase in credit up to August 4 was Rs 54,341 crore and in deposits Rs 1,14,941 crore. In the same period of 2005-06, the increase in credit was Rs 41,495 crore and in deposits Rs 53,952 crore.

The credit growth in 2005-06 was primarily driven by retail credit. A total of over Rs 1,86,700 crore of retail credit was disbursed by banks in 2005-06 and about 40 per cent of the retail pie was accounted for by SBI and ICICI Bank. ICICI alone disbursed 33 per cent of it (Rs 62,069 crore) and SBI another Rs 12,983 crore.

Retail credit expanded at rates ranging between 22-41 per cent since 2001-02 and accounted for 26.7 per cent of the incremental non-food credit in 2005-06.

The share of advances to "individuals" increased from about 10 per cent of total bank credit in March 2002 to nearly 25 per cent in January 2006. This signifies how aggressively commercial banks have been chasing consumer loans.