Finally, banks admit they will miss credit targets

Public sector banks have almost given up on meeting the 20 per cent credit growth target they had set at the start of the current financial year. And, unlike the past, they are now acknowledging about missing the target.

Against the targets, which were upwards of 25 per cent for players such as State Bank of India and Union Bank, these banks are showing sub-20 per cent growth. Now, SBI is willing to settle for up to 18 per cent credit growth by March-end, while Union Bank Chairman and Managing Director MV Nair said that overall bank credit was expected to grow at around 15 per cent.

At the start of the financial year, the Reserve Bank of India (RBI) had projected a credit growth of around 20 per cent for the year-ending March 2010. Subsequently, as companies put expansion plans on hold and individuals deferred purchase of apartments and automobiles, the central bank had revised the estimate to 18 per cent. During the year-ended December 18, 2009, bank credit growth was estimated at 11.25 per cent after hitting a 10-year low of 9.8 per cent.

In addition, as SBI Chairman OP Bhatt said on Friday, companies were still slow to avail already sanctioned credit. With projects on hold in the wake of the slowdown, for the country’s largest lender, the gap between sanctions and disbursals was close to Rs 50,000 crore.

Within the banking sector, there are players such as ICICI Bank, which is expected to close the current financial year with 5 per cent expansion in its overall loan book, as it has exited a host of segments and is going slow on many others. The focus in the retail segment is now limited to auto and home loans, while unsecured lending is a thing of the past.

Federal Bank Chairman M Venugopalan said credit flow had grown by 18 per cent so far, and it might rise to 23 per cent by March-end. This will be marginally lower than the original estimate of 25 per cent.

Even within public sector, which was largely responsible for 24.5 per cent credit growth at the end of March 2009, there are players, such as Central Bank of India, which have seen 12-13 per cent increase till December 2009, as against a target of 22 per cent for 2009-10.

Indian Overseas Bank Chairman and Managing Director SA Bhat said the growth was around 10 per cent till December 2009. It is expected to reach 15 per cent by the end of the financial year on the back of disbursement of around Rs 6,000 crore to infrastructure projects.

“Till December, our year-on-year credit growth was 15-16 per cent. If the fourth quarter is good, we will reach our target of 18 per cent,” said Alok Misra, chairman and managing director, Bank of India.

Similarly, Canara Bank is seeing credit growth of sub-20 per cent. For the year-ended December, its credit growth was 16-17 per cent. Apart from lower demand, the bank’s Chairman and Managing Director AC Mahajan said, the high base of last year would skew the picture.

“This rise has to be seen in the backdrop of huge growth the bank saw last year (2008-09) when only public sector banks were lending in the second half after the financial crisis intensified,” added Andhra Bank Chairman and Managing Director RS Reddy. The bank expects its credit flow to grow by 20 per cent in the year-ending March 2010.

But there are players seeing more rapid growth. Allahabad Bank has seen a growth of 24 per cent in the year till December.

While some other lenders are predicting higher growth during the last three months, the Kolkata-headquartered bank expects the increase to moderate around 20 per cent. “It is because the base effect will come into play. Last year, February and March saw high growth, which is not expected this year,” said a bank executive.

Yes Bank, which has so far seen its loan book expand by around 70 per cent, expects the growth to stay in this region. “Even if there is no lending from now till the end of the year, we will close the year with a 50 per cent increase,” said a bank executive. In Yes Bank’s case, it is the small base that is helping it buck the trend.