ICICI Bank's cautious approach to financing 'high-risk' realty firms seen as the reason.
Bank credit to the sensitive sector comprising real estate and capital markets rose at a slower pace of 14.18 per cent in 2008-09 compared to 26.1 per cent in 2007-08 as the largest private sector bank, ICICI Bank, took a cautious approach on retail lending after the bankruptcy of Lehman Brothers in September 2008.
The exposure of ICICI Bank to the sensitive sector declined by 7.6 per cent, or by Rs 6,800 crore, in 2008-09 due to liquidity crisis and net withdrawal of Rs 28,270 crore by term depositors.
| SENSITIVE EXPOSURE The top 10 banks in terms of credit (Rs crore) | ||||
| Bank | 2007-08 | % chg | 2008-09 | % chg |
| ICICI Bank | 89,783 | 5.33 | 82,986 | -7.57 |
| State Bank | 64,459 | 46.54 | 71,079 | 10.27 |
| PNB | 26,147 | 64.28 | 33,197 | 26.96 |
| IDBI Bank | 18,706 | 14.08 | 24,740 | 32.25 |
| HDFC Bank | 14,641 | 64.79 | 22,794 | 55.69 |
| Bank of India | 18,543 | 26.66 | 22,668 | 22.24 |
| Axis Bank | 17,053 | 40.33 | 21,522 | 26.21 |
| Central Bank | 12,193 | 46.66 | 18,988 | 55.73 |
| Union Bank | 14,900 | 21.50 | 18,638 | 25.09 |
| Canara Bank | 16,327 | 9.39 | 17,700 | 8.41 |
| Private banks (11) | 1,34,261 | 15.98 | 1,41,603 | 5.47 |
| Public sector (27) | 3,11,546 | 31.01 | 3,67,420 | 17.93 |
| Total (38 banks) | 4,45,806 | 26.08 | 5,09,023 | 14.18 |
| Note: %change over previous year | ||||
A majority of the sensitive sector lending went to the realty segment, while the share of the capital market was only 9 per cent. In the real estate segment, while lending secured by mortgages of commercial realty increased by 35 per cent, the same secured by mortgages of residential property increased by only 8 per cent. The exposure of banks to the capital market increased by a meagre 0.5 per cent, compared to the 16 per cent growth for the real estate segment.
If one sets aside ICICI Bank from the pack of lenders, lending to the sensitive sector grew by 19.67 per cent in FY09 compared to 32.68 per cent in FY08. Sensitive sector lending by 15 banks rose by over 25 per cent each, while eight banks posted a modest single-digit growth and six reported a decline. Of the 38 listed banks, only IndusInd Bank among private banks and Central Bank of India, IDBI Bank, Indian Overseas Bank, Oriental Bank of Commerce and Union Bank of India among public sector banks, have recorded sensitive sector lending growth compared to FY08.
Nevertheless, listed banks’ exposure to the sensitive sector has crossed the Rs 5 lakh crore-mark at Rs 5.09 lakh crore. However, share of the sensitive sector in total advances has declined to 18.53 per cent at the end of March 2009 from 20.18 per cent in FY08. ICICI Bank tops the list with 38 per cent advances given to this sector. State Bank of India (SBI) has contributed 13.10 per cent to the total sensitive sector credit. Among other private banks, Axis Bank and Kotak Mahindra Bank have high exposure to the sensitive sector at 26.39 per cent and 31.46 per cent, respectively.
Credit to the sensitive sector, or retail credit, has been increasing at a compounded annual growth rate (CAGR) of 51 per cent with its share in the total bank credit rising from 10 per cent in FY04 to 22 per cent now.
However, according to analysts at CLSA India Research, the share of retail credit is unlikely to rise in the near future as banks have been avoiding high-risk, unsecured retail loans. Corporate loans are expected to drive the credit growth, they say.
Project financing will drive corporate credit demand as companies build new capacities and government increases infrastructure spending. Demand for working capital is also likely to rise as most industries have reached their peak efficiency levels. Working-capital demand from these industries will also reflect pick-up in volumes.
