Bank credit shifts from retail to SMEs, farms

Mid-corporates, small and medium enterprises (SMEs) and agriculture are driving SBI's credit growth even as retail loans are losing steam.

State Bank of India's year-on-year credit growth has slowed to around 25 per cent at the end of March 2007 from 29 per cent a year earlier. The slowdown in retail loans is sharper. The largest bank's growth in retail loans has slowed to nearly 20 per cent from 27 per cent a year earlier.

"The credit growth should be 25-26 per cent at the end of the fourth quarter (of 2006-07), with growth coming mainly from mid-corporates, agriculture and retail, in that order," said a senior SBI official.

Punjab National Bank, which has decided to reduce the share of retail loans to the total loans by 3 per cent points to 22 per cent over the last quarter of the year, has also seen its home loan portfolio growing at a slower pace amounting to 22 per cent compared to 28 per cent a year earlier.

Though retail loans' growth has been slowing over the last few months, the overall growth has still remained robust. The year-on-year growth in total bank credit was 29 per cent as on March 16, 2007 against 31.6 per cent a year earlier. The absolute increase in credit outstanding during the period was Rs 4,19,290 crore against Rs 3,47,237 crore a year earlier.

SBI's total loan book is estimated at Rs 3,27,052 crore `for the year ended March 2007, with retail advances standing at Rs 73,280 crore. The slackening growth in the bank's retail advances can be accounted for by a similar slowdown in housing loans.

Consequently, the share of retail loans in the bank's total advances is likely to come down from 26 per cent at the end of December 2006 to just over 22 per cent at the year-end.

"Home loan growth has slowed down from 25-26 per cent to 19 per cent on account of rising interest rates and mounting property prices," the SBI official added.

SBI has raised its home loan rates by around 200 basis points since April 2006. Home loans constitute over half of the bank's retail book. One basis point is one-hundredth of one per cent.

"While the share of retail loans has dipped, the lending to productive sectors has gained momentum," said V Santharaman, executive director, Bank of Baroda.

KC Chakrabarty, chairman and managing director, Indian Bank, said, "We have been growing at 24 per cent with most of the growth coming from agriculture, education loans and SME. Retail loans have been growing at 20 per cent, constituting 25 per cent of our portfolio, compared to 28-29 per cent last year."