Banks’ loans are set to grow at the slowest pace in a decade this financial year, as companies continue to shy away from borrowing in the current uncertain macro-economic environment.
Banks’ year-on-year credit growth had dipped below 17 per cent in August and is expected to moderate further, bankers and analysts said. “We could see loan growth for 2012-13 moderate to 14 per cent, a 14-year low,” Rajeev Varma and Veekesh Gandhi, analysts with Bank of America Merrill Lynch, wrote in a note to clients. Bankers were not willing to comment on record because of the sensitivity of the issue but on condition of anonymity, they agree expanding their loan portfolios in the second half will remain a challenge.
“There is a slowdown, undoubtedly. There is hardly any growth in corporate loans. Even the demand for working capital finance is drying. Even if the Reserve Bank of India (RBI) chooses to cut rates on Monday (at its monetary policy review), this will not boost credit demand, as business sentiments continue to remain negative. Some relaxation in policy rates will only improve market sentiments,” said an executive director of a Mumbai-based public sector bank. While a few bankers were optimistic that loan demand would not decline further in the second half, they agreed the rate of growth was likely to be at its slowest in the past nine to ten years.
“RBI has guided (forecast) 17 per cent growth but we expect actual growth in the range of 15-16 per cent. It will be unfair to say growth is slow, given bank credit base. But if you compare it with past growth rates, it may be the lowest in the last nine or 10 years,” said a senior official with a foreign investment bank.
The only silver lining for banks is likely to be retail loan demand, not declined significantly despite high interest rates.
At the end of July, data from RBI shows, personal loans category including housing, education and vehicle loans grew 15 per cent, the same pace compared with annual growth witnessed last year.
“Retail loan demand is seeing a revival on base effects and a partial pick-up in home loans, driven by the return of ICICI Bank in this segment. The under-penetration of retail products and availability of third-party vigil from the retail credit bureau is seeing better quality of credit being underwritten and, hence, growth is following,” Bank of America Merrill Lynch analysts said. “More, recent rate cuts by many banks in home loans and auto loans by 25-50 basis points on retail products may also spur demand.”
However, low demand for loans from the corporate and small and medium enterprises sectors is likely to drag down credit growth this year, they added.