Bangalore: Banks expect credit offtake to falter for the rest of the current fiscal year compared with last year. This is primarily because of the decrease in demand for housing loans due to a sharp rise in real estate prices, which has escalated on an average by about 20-30% in the last one year.
Recently released mid-term review data of macroeconomic and monetary developments by the Reserve Bank of India (RBI) reveals that loan growth at 20.2% in the January-July 2007 period was considerably lower than the 32.4% growth during the year-ago period.
Industrial Development Bank of India Ltd said it foresees loan growth of about 20% in the second half of this year, compared with a growth of 27% a year ago. ICICI Bank Ltd sees loan offtake increasing by 20%, compared with 29% last year. State Bank of India (SBI) officials said the lender expects loan disbursements of Rs1 trillion in the ongoing third quarter. “There could be a cooling down in offtake by 2-3% in the second half of 2007-08,” said an SBI general manager, who did not want to be identified.
Experts say the deceleration was expected. “Loan growth in India is driven by housing loans,” said Sejal Doshi, CEO of Mumbai-headquartered Finquest Securities Pvt. Ltd. “With the rise in home loan interest rates and high real estate prices, people have put their buying decisions on hold.” Doshi said RBI’s decision to increase cash reserve ratio (CRR) by 50 basis points to 7.5%—the highest since 2001—has also pushed down growth rates. This is because an increase in CRR tends to decrease the money available for lending.
An analyst with a Mumbai-based brokerage firm, who did not wish to be named, said he expects total advances to be around Rs3.8 to Rs4 trilllion in fiscal 2008, compared with Rs4.16 trillion in fiscal 2007. Hemindra Hazari, head of research, Karvy Stock Broking Ltd, said that to improve credit offtake, banks are shifting away from approving housing loans to focusing on lending to other sectors, such as infrastructure and agriculture.