Mumbai: Indian banks are confident of achieving their loan growth targets in fiscal 2012, riding on demand for money from individuals, and small and medium-sized firms, even as they acknowledge the first signs of slower economic growth.
The chiefs of nine out of 11 banks—big, medium and small —Mint spoke to over the weekend and on Monday, after the close of the first quarter of the fiscal, said they are confident of beating the Reserve Bank of India’s (RBI) estimate of 19% credit growth for the fiscal year.
Collectively, these banks account for close to 50% of the industry in terms of assets.
The nation’s largest lender, State Bank of India, has pared its credit growth target for the fiscal year from 19-22% to 16-19%, but other large banks such as Punjab National Bank (PNB) and Bank of Baroda are confident of maintaining their credit growth targets set in the beginning of the year.
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K.R. Kamath, chairman and managing director of PNB, said the bank is sticking to its target of growing 2 percentage points more than RBI’s estimate.
“If RBI is projecting a growth rate of 18-20%, we will grow at 20-22%. We see all-round growth in all sectors and expect corporate loans to grow at 20%. We are not changing our forecast,” he said.
According to Bank of Baroda chairman and managing director M.D. Mallya, it could be a bit early to change the credit growth estimate based on the first quarter business, which is always “lacklustre”.
“Borrowers are drawing down money for projects and the (credit) pipeline is quite full. Fresh sanctions (of loans) may not have been substantial, but that is because the slackness in the first quarter,” he said.
“On a year-on-year basis, the growth has been reasonably good both for the industry and Bank of Baroda. The industry grew at 20%; Bank of Baroda grew at 24%,” Mallya said, adding the bank is for now maintaining its credit growth target for the year at 23-24%.
If indeed banks do maintain their credit growth targets and achieve them by the end of the fiscal year, it would mean that the rising cost of money has not hurt economic growth and that corporations are not postponing their investment decisions.
Many analysts fear a slowdown, if only marginal, but bankers seem to be confident that loan growth will pick up the second half of the year.
Year-on-year credit growth for the banking sector till the week ended 17 June, according to latest figures released by RBI, is 20.7%, but incremental credit growth has been slack with banks disbursing Rs 59,438 crore since April.
In percentage terms, loan growth in the first two-and-a-half months of the new fiscal is 1.5%. In the comparable period last year, banks disbursed Rs 70,503 crore of loans, a 2.2% growth.
M. Narendra, chairman and managing director at Chennai-based Indian Overseas Bank, said rising interest rates in India and availability of overseas windows for credit such as external commercial borrowings have reduced demand for credit from large companies, but added that he is “confident of achieving 22% credit growth target for the year”.
Narendra expects credit demand to come from emerging sectors such as education and hospitals, besides individuals. In fiscal 2011, his bank’s loan growth was 40%.
Ramnath Pradeep, chairman and managing director at Mangalore-based Corporation Bank, said his bank will take a fresh look at its credit growth targets in a month’s time, as the first quarter is not a real indicator of demand. “We may relook into our projection of 25% after one month, but we are confident that we will pull through,” he said. The focus will be on small companies, retail loans and agriculture.
Andhra Bank chairman and managing director R. Ramachandran, too, said his bank will “certainly” have a 20% credit growth. At the moment, its target is 20-22% credit growth for fiscal 2012.
Relatively smaller banks are, however, feeling the pressure.
For instance, Bipin Kabra, chief financial officer at Dhanlaxmi Bank Ltd, said the kind of “euphoric” growth his bank saw last year is unlikely to be repeated this year.
“There definitely has been a slackening in the first quarter compared to last year. But we will have to wait for a couple of months before we revise any targets,” he said.
Dhanlaxmi Bank recorded a 75% growth in credit in 2010-11, but is finding it difficult to gather momentum this year because higher interest rates have forced large companies to delay their capital expenditure plans.
D.L. Rawal, chairman and managing director at Dena Bank, said credit growth for his bank is likely to be near 18%, at the lower end of its 18-20% target.
“We are expecting credit growth to pick up in the next three quarters and are focusing on sectors like agriculture, retail, and small and medium enterprises,” he said. The bank’s credit growth last year was 26.5%.
But Kotak Mahindra Bank Ltd and South Indian Bank Ltd are confident of growing their loan book by at least 30% and 25%, respectively.
“In the first quarter, we have seen a credit growth of 5-6% and have exceeded our target. I see no issues in achieving the 25% target this year,” said V.A. Joseph, MD and chief executive of South Indian Bank.
Analysts are not as confident as bankers. They fear slowing demand for loans as large companies are likely to cut down capital expenditure plans. Amandeep Goraya, research analyst at Finquest Securities Pvt. Ltd, said larger companies are delaying projects, slowing credit growth.
“Loans to retail and small companies offer higher yields, but these sectors are also likely to be impacted because larger companies will delay projects,” he said.
But private sector banks are likely to do better than public sector banks as their loan appraisal process is different.
“Unlike public sector banks, private banks do not have many social obligations, they have liberty in making decisions, which reduces pressure on the management,” said Kajal Gandhi, assistant vice-president at ICICI Direct, the retail broking arm of ICICI Securities Ltd.
And unlike last year, this year banks will not have a large one-off demand for loans as was seen soon after the auction of third-generation (3G) mobile spectrum in fiscal 2011.
Telecom firms had paid the Union government Rs 67,719 crore for licences to provide 3G mobile phone services and the bulk of this money was raised from banks.