Retail loans drag credit offtake

Manufacturing sector slowdown, low retail loan pull down credit growth 21%.

High interest rates and the resultant suppressed demand for housing and retail loans has slowed down non-food credit growth to 21.8 per cent during April-February 2007-08 compared with 29.6 per cent in the corresponding period last year.

The industrial slowdown in the last few months has only added to the dip in the credit growth rate, which is at present below the Reserve Bank of India's (RBI) target of 23-24 per cent rise during the current financial year. With a spurt in lending during the last month of the financial year, the target might just be met.

Advances at the end of February were estimated at Rs 22, 09,732 crore, 21.8 per cent growth over the credit offtake a year ago, according to the RBI data. 
 

GLOOMY PICTURE Non-food credit growth
	Year-on-year change (%)
	2006-07	2007-08
April	31.7	27.2
May	30.9	26.3
June	31.8	23.4
July	31.1	23.4
August	31.5	22.8
September	30.2	21.9
October	28.5	22.5
November	29.4	22.3
December	30.8	21.5
January	29.6	22.8
February	29.8	21.4
Source: RBI statistical suppliment

Punjab & Sind Bank Chairman and Managing Director R P Singh said there was now a slight slowdown in the credit demand from the manufacturing sector, in line with the trend of lower rise in output, though infrastructure sector had seen a rise in demand for credit.

As a result, bankers said, companies who had earlier had loans sanctioned were now going slow on seeking disbursals. Some were taking it easy in the hope that interest rates would dip if bankers took a cue from the government. Others were using the time to negotiate a better deal with another bank, said a banker.

"Looking at the overall situation, some corporates are postponing the spending plans. Many companies are not availing of sanctioned credit limits," a senior UCO Bank official said.

Among industrial segments, though the latest data were unavailable, automobiles and textiles, which has been hit by higher interest rates and a stronger rupee, were seeing lower demand. But power, road, ports and airports were compensating to an extent.

According to RBI's provisional data for April-November 2007, when the non-food credit flow grew 25.3 per cent, credit to vehicles (38.5 per cent) saw the maximum rise, followed by construction (37 per cent) and food processing (30 per cent).

Flow of credit to infrastructure grew 34.5 per cent. The share of infrastructure in the total outstanding credit to industry increased from 20.2 per cent in November 2006 to 21.7 per cent in November 2007.

On the other hand, credit flow to the engineering sector had gone up 28.4 per cent in the first eight months of the current financial year, while metals saw a 27.1 per cent rise, followed by textiles (24.4 per cent) and petroleum (17.8 per cent).

The retail loan seems to have made a big difference. "Due to higher interest rates and elevated property prices, there is a perceptible decline in the advances growth for retail, especially housing loans," said a senior State Bank of India (SBI) executive.

SBI's home loan portfolio, which has a share of around 50 per cent of the bank's retail advances, grew 16 per cent to Rs 42,522 crore at the end of December 2007. In the corresponding period in 2006, the growth rate was over 25 per cent.

Similarly, ICICI Bank's home loan disbursals were up 12 per cent at the end of the third quarter, while its overall loan growth was estimated at around 25 per cent.

Bankers have, however, not given up yet. "We expect a spurt in credit offtake this month and the banking industry will clock growth of about 23-24 per cent for 2007-08," said Canara Bank Executive Director G S Vedi.