SBI, ICICI credit growth slows

This is one bit of information that the banking regulator would love to hear. Credit disbursements at the country's two biggest banks - State Bank of India (SBI) and ICICI Bank - in the first quarter of the current financial year have shown signs of a slowdown.

On a quarter-on-quarter basis, the expansion in SBI's advances 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 corresponding figure is 0.69 per cent (Rs 1,021 crore) as against 13 per cent (Rs 12,082 crore) a year earlier.

The Reserve Bank of India (RBI) wants to rein in credit growth close to its projected 20 per cent year-on-year increase in 2006-07, to rein in money supply and also its impact on asset prices.

The year-on-year growth in non-food credit in the current financial year up to August 4 continued at a faster pace of over 32 per cent as against a similar growth last year.

The incremental credit-deposit ratio of the banking system also continues to be close to 100 per cent.

But in 2006-07 up to August 4, the incremental increase in credit up to August 4 was Rs 54,341 crore.

In deposits, the incremental increase was Rs 1,14,941 crore. During the same period in 2005-06, the increase in credit was Rs 41,495 crore and in deposits Rs 53,952 crore.

"The y-o-y growth continues to be substantial on the back of high credit growth in 2005-06. However, some of the banks have been consciously reining in their growth and ICICI Bank and SBI belong to this category," said a sector analyst.

The growth in credit this year is coming more from outside the top 7-8 cities, particularly to small and medium enterprises, another analyst said.

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 the last financial year and about 40 per cent of the retail pie was accounted for by SBI and ICICI Bank.

ICICI Bank alone disbursed 33 per cent of it (Rs 62,069 crore) and the State Bank of India another Rs 12,983 crore.

The Reserve Bank of India (RBI) has projected 20 per cent year-on-year increase in credit this financial year.

Retail credit expanded at rates ranging between 22 per cent and 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.

The drive to expand non-food credit induced shifts in banks' investment portfolios. Banks are required to put in 25 per cent of their liabilities in maintaining statutory liquidity ratio (SLR).

The proportion of SLR investments went up to 40 per cent for some banks a couple of years but now they have come down by a wide margin as banks have been liquidating their statutory liquidity ratio holdings to meet the higher credit demand.

For the first time since the nationalisation of banks in 1969, investment by commercial banks in statutory liquidity ratio securities declined by Rs 11,576 crore in 2005-06 in contrast to an increase of Rs 49,373 crore in 2004-05.