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Banks’ exposure to sensitive sectors, including capital markets, real estate and commodities, has doubled in a year, primarily due to loans to the real estate sector. “This expansion needs to be seen in the light of the steep rise in housing prices in all tier-I and several tier-II cities in 2012-13,” the RBI report said.
New private sector banks, along with State Bank of India (SBI) and its associate banks, were the most aggressive in extending loans to sensitive sectors. While the SBI group has seen 25.6 per cent growth in these sectors, for new private banks this was 19.8 per cent. Overall loan growth in the banking system was 13.6 per cent in 2012-13.
While the SBI group’s exposure to these sectors accounted for 17.2 per cent of its total loans, for private and foreign banks the figure was 28.9 per cent and 29.8 per cent, respectively. (Indian Banks: A health check-up)
“In the past, growth in credit to sensitive sectors generally followed a pattern similar to the growth in overall credit. However, in 2012-13, growth in credit to sensitive sectors almost doubled, primarily on account of credit to the real estate sector,” RBI said.
SBI and its associate banks recorded a 24.3 per cent increase in loans to the realty sector; for new private banks, the growth was 14.8 per cent.
While the sensitive sectors saw a surge in credit, this came at the cost of productive sectors in which growth slowed. “2012-13 was marked by a slowdown in the growth of credit to all productive sectors, that is, agriculture, industry and services. The slowdown was sharpest in the case of agriculture and allied activities. By comparison, retail was the only segment that maintained growth in loans,” RBI said. Retail loans continued to grow in double digits due to sustained double-digit growth in housing loans. The increase in loans to the automobile sector was sharper.
The central bank also expressed concern on the deteriorating capital position of public sector banks, in view of the migration to the Basel-III framework, though the capital adequacy ratio remained above the statutory requirement. “Deteriorating capital positions of public sector banks is a matter of concern, given the fiscal implications of capital infusion in these banks,” RBI said.
For migration to the Basel-III framework, public sector banks will need additional capital of Rs 4.15 lakh crore, of which equity capital will be Rs 1.4-1.5 lakh crore, while non-equity capital requirement will be Rs 2.65-2.75 lakh crore.
“As they migrate to the Basel-III framework, both the quantity and quality of (common equity) of capital will need to be improved, while meeting the credit need of the economy and maintaining the floor for public ownership,” RBI said.
In the last five years, the government has infused Rs 47,700 crore in public sector banks. This financial year, it will infuse an additional Rs 14,000 crore. With government shareholding in public sector banks ranging between 55 per cent and 82 per cent, RBI feels there is scope for dilution of the government’s stake.
