But sub-PLR corporate loans could be re-priced.
Bankers today said they might not raise rates in the near future despite a 75 basis points (bps) increase in the cash reserve ratio (CRR) as credit demand was low and liquidity was expected to be sufficient.
There will, however, be an element of repricing of sub-prime lending rate (PLR) corporate loans, which is a focus area for the Reserve Bank of India (RBI).
HDFC Bank Managing Director and Chief Executive Officer Aditya Puri said retail lending rates were unlikely to rise for another six months. Even SBI Chairman OP Bhatt said there was little chance of lending rates moving up.
“Right now, corporate loans are mispriced. With policy tightening, that may see a correction,” said a source in the central bank.
“We will have to examine (the effect of the CRR hike) because by my rough calculation, I will have to park an additional Rs 750 crore with RBI. So, we have to see how to compensate this loss. Maybe there will be slight increase in rates for some sectors, but not much. We may increase short-term corporate loan rates, but the CRR hike will not affect home, agriculture and retail loan rates,” said UCO Bank Chairman and Managing Director SK Goel.
For banks, sub-BPLR lending accounts for three-fourths of the total. While most banks did not disclose this data, State Bank of India said during the third quarter, 67 per cent incremental growth in lending was at sub-PLR rates, in which the share of home loans was 28 per cent.
There would be an eight to 10 bps impact on margins, bankers said. The CRR hike will result in banks parking an additional Rs 36,000 crore with RBI, which will not earn any interest.
To meet the revised non-food credit growth estimate of 16 per cent, banks will need to lend around Rs 198,000 crore over the next 10 weeks.
The central bank today lowered the credit growth estimate for 2009-10 from 18 per cent to 16 per cent. In the last 10 weeks, banks have disbursed loans to the tune of Rs 117,197 crore.
“Yes, we will be able to meet the target,” said Union Bank of India Chairman and Managing Director MV Nair.
“SBI has already crossed the target as its annualised credit growth has been 17.2 per cent, or Rs 57,600 crore, up to January 1. Even as banks push credit, they will need to closely track credit quality to avoid build-up of NPAs (non-performing assets) going forward,” said Bhatt.
RBI also flagged the issue of real estate price spike in recent months, though it added that prices were yet to reach the peaks seen in the pre-crisis days. Banks such as SBI have seen their bad debts rising by nearly 50 per cent during the third quarter and warned further deterioration in restructured loans.
In the backdrop of sluggish credit growth, RBI has revised loan growth target twice in this financial year. At the start of the financial year, it had projected credit growth of around 20 per cent for the year ending March 2010. But as companies put expansion plans on hold, the gap between sanctions and disbursals went up, prompting the central bank to revise the estimate to 18 per cent in the second quarter review. During the year ended January 15, 2010, bank credit growth was estimated at 13.88 per cent, after hitting a 10-year low of 9.8 per cent in October.
The third quarter results indicated that banks might not be in a position to meet the earlier growth target of 18 per cent. Though public sector lenders’ credit growth was in line with the central bank’s revised projection, credit growth of private sectors banks was at 10 per cent for the year ended January 15 while foreign banks were still shrinking their loan books.
