ICICI's credit growth slows

Expected to be half the rate of last 5 yrs.

ICICI Bank, the key driver of the retail lending boom that began about four years ago, has finally seen a moderation in growth in consumer credit. The increase in retail credit disbursements made by the bank in 2006-07 would be half the expansion in each of the last five years.

"The growth in (retail loan) disbursements would slow to 20 per cent in 2006-07 from 40 per cent experienced over five years," said V Vaidyanathan, executive director, ICICI Bank. 

ICICI'S PORTFOLIO Retail loans as on December 31, 2006                                              (Rs crore)
Home loans	59,700
Auto loans	19,400
Commercial business	14,000
Personal loans	10,800
Credit cards	4,600
Dealer funding	3,000
Two wheelers	2,700
Professional equipment	1,100

ICICI Bank disbursed retail credit of Rs 62,069 crore in 2005-06. Going by projections, the bank would have disbursed nearly Rs 74,500 crore as the year closes at the end of this month.

Analysts said this is a sign of the overall credit growth in the banking industry moderating closer to the Reserve Bank of India's (RBI) 20 per cent target. The RBI has been tightening the monetary policy since September 2004, raising both reverse repo and repo rates by 150 basis points to 6 per cent and 7.50 per cent, respectively, and the cash reserve ratio (CRR) by 150 basis points to 6 per cent.

The reverse repo rate is the rate at which the RBI withdraws liquidity from the system by issuing bonds. The repo rate is the short-term lending rate for banks against bank securities. CRR relates to the amount of cash banks must statutorily keep with the central bank.

The State Bank of India (SBI), which witnessed a surge in credit growth in the third quarter of 2006-07 to report a 28 per cent year-on-year increase in loans portfolio, expects to end the year with 22-25 per cent growth.

Vaidyanathan said the home purchase transactions have flattened more because of the peaking of property prices, and less on account of the increase in interest rates.

He, however, expects the share of home loans in ICICI Bank's total loans portfolio to fall. The bank had total loans outstanding of Rs 1,72,763 crore at the end of December 2006, up 41 per cent from a year earlier.

The bank would be able to ensure profit growth through direct selling and use of internet for sourcing customers and reduce the expenditure on direct marketing agents.

Vaidyanathan said the rise in interest rates, more sharply since the beginning of 2006-07, is unlikely to impact the demand for shorter-term loans for two-wheelers and cars. Interest rates have a much larger impact on home loans as the amounts are larger and it takes a much longer period to repay them.