State Bank of India, the country's largest public sector bank, has lowered its credit growth target for the current year to between 16 and 19 per cent from the earlier 19-22 per cent, on the back of continuing monetary tightening measures by the Reserve Bank of India.
However, the bank maintained the net interest margin would stay higher than 3.5 per cent recorded last year, mainly on account of a higher base rate.
"We expect a slowdown in credit growth as many companies are considering postponement of their expansion plans, which apply to long-term credit and term credit for equipment finance, due to rising interest rates," said Pratip Chaudhuri, chairman, SBI.
Considering credit squeeze as a function of monetary tightening, Chaudhuri said the central bank had to raise repo and reverse repo rates to tame higher inflationary pressures. "They would stop the tightening when inflation comes down," he said responding to a question on when the current trend was expected to ease.
According to him, credit growth for the current financial year is expected to register between 16 and 19 per cent, below the lower band of the earlier target. Chaudhuri, however, said he did not expect any change in the retail segment. "Retail comprises 25 per cent of the total business and it would stay that way."
The bank's assets and liabilities committee would meet this week to take stock of base rate issues, though the chairman did not give any indication whether they would take a call on raising the base rate in this meeting. He also said the initial trends suggested positive response from corporate houses, who are coming to terms with the higher interest rates prevailing in the market.
Responding to a question, he said higher provisioning of Rs 550 crore was made towards low-interest deposits amounting to Rs 25,000 crore and not out of any delinquency. On the bank's nonperforming assets (NPAs), he said there was nothing unusual as this was because of the stress in the market. However, he said the bank was slated to reduce the net NPAs by 25 basis points from the present 1.63 per cent.
