Mumbai: Banks expect a revival in demand for loans from companies, primarily in infrastructure, apart from non-traditional sectors like healthcare and education as the busy season picks up in September, bankers and analysts said.
An overall general slowdown and sluggish loan demand has put the brakes on India’s loan growth that was hovering around an annual rate of 15-16% in July, way below the Reserve Bank of India’s (RBI) expectations of 20% for 2009-10.
Indian loan growth was as high as 27% in December 2008 and over 30% in 2007-08, before the global slowdown hit demand. It fell to 17% in March before slipping further in the April-June quarter.
Loan demand (in the second half) is expected mainly from the corporate sector, said Anando Bhowmick, analyst at Fitch Ratings.
“Growth in industries would drive the demand for funds from banks. We expect core sectors like engineering, infrastructure may need more funds going forward,” Bhowmick said.
On Wednesday, India’s factory output expanded at its fastest pace since February 2008 by rising 7.8% in June outpacing a rise of 2.2% in May raising hopes that a strong momentum in factory output could help mitigate the effects of a poor monsoon season on overall economic growth.
A study of loan data between February and May shows loans were driven by small and medium enterprises, he said.
Seasonal sowing also helped agriculture spruce up loan growth to a certain extent, he said, adding infrastructure has been showing secular growth throughout.
A few banks are also looking to lend to non-traditional sectors as demand picks up.
“We are looking at lending to some non-traditional sectors like hospitals, education institutions and biotech that are showing good growth,” said J M Garg, chairman and managing director at state-run Corporation Bank.
The bank is also targeting a 30% rise in its corporate loan book, which includes the new sectors, he said.
“We are also looking at lending to agro-based, pesticide and textile industries apart from the traditional industries like steel, cement and infrastructure.”
The bank would, however, remain cautious on retail lending.
Growth in retail comprising auto, home and personal loans is expected to be marginally higher at 10% in 2009-10 as delinquency rates were high, Garg said.
Fitch’s Bhowmick also agrees that consumer loans would take some time to pick up as delinquency rates were high during the economic downturn.
Data on the first half of the year showed that retail loans did not rise much owing to the cautious approach adopted by bankers, Bhowmick said.
B A Prabhakar, executive director, Bank of India, is of the view that there was some demand for loans from healthcare and education segments even during the slowdown.
But it remains a miniscule part of the loan book for banks to look at as an effective force to boost loan growth, he added.
“We expect infrastructure, consumer durables and automobile sector to help grow loans in second half of the year.”
Some banks are targeting the affordable housing sector, which is showing good demand.
“A lot of affordable housing projects are coming up in tier I and II cities. We are looking at 54% rise in the housing loan portfolio this year,” said D L Rawal, chairman and managing director at state-run Dena Bank.
In the April-June quarter most banks reported decent profits on higher non-core incomes like treasury profits, making it more important for them to aim for higher loan growth to attain a sustainable rise going forward, analysts said.
Banks are expected to bet on infrastructure backed by the government’s push on the sector as some capex plans have been lined up as demand is seen coming back, Parag Jariwala, analyst at CARE Ratings, said.
“Some smaller banks may look at healthcare and education as a good bet since it will help them grow their loan book.”
However, some analysts are sceptical about terming the slight pick-up in loans as a signal of revival in loan demand.
“A clear picture on whether the pick-up will be sustained will emerge only after the busy season starts in September,” said an analyst with a Mumbai-based brokerage, on condition of anonymity.