Mumbai: Loan growth of banks in India rose by 17.3% in the year ended 31 March—the lowest in five years—driven largely by state-owned lenders, particularly in the last fortnight of the fiscal.
Private and foreign banks have registered much slower credit growth. Some, in fact, may not show any loan growth at all when their numbers are announced later this month.
The growth, however, was lower than the 24% target set by the Reserve Bank of India (RBI).
Comparing figures: Prime Minister Manmohan Singh before leaving for the G-20 summit in London said foreign and private lenders were not extending credit facilities despite a slew of rate cuts by the central bank. Subhav Shukla / PTI
The growth in loans issued by 30 foreign banks slowed to 16.9% in the year ended 2 January, against 30.7% for the corresponding period a year ago, RBI data show. Their year-on-year deposit growth shrank to 12.1% from 34.1%. In contrast, the growth of public sector banks in terms of loans issued was 28.6%, up from 19.8%, and their deposit growth remained stable at 24.2%, RBI said.
The fall in credit growth is serious enough that just before he left for the Group of Twenty summit in London earlier this month, Prime Minister Manmohan Singh said foreign and private banks were not extending credit facilities despite a slew of rate cuts by RBI. The central bank has brought down its policy rate from 9% to 3% since October.
In a meeting with leading industrialists, Singh had said “Although the credit growth of PSU (public sector unit) banks this year had been 23% as against 22% last year, the credit flow from private and foreign banks has been of the order of one-third to one-fourth of what it was a year ago.”
Executives of at least seven private and foreign banks that Mint spoke with denied this, saying they were active in the credit market. They pointed to a lack of demand which they said is picking up now.
Parthasarthy Mukherjee, president, credit, Axis Bank Ltd, said, “We are fairly lending in the market, but there is clearly a fall in demand for credit.” He refused to quantify the slump in credit demand but conceded that the bank has seen a slower pace of credit growth in the current quarter. He also expects “demand to pick up in the third quarter of the calendar year”.
However, ICICI Bank Ltd, the largest domestic private sector bank, has been shrinking its balance sheet, a move that will likely reduce the total market share of such banks.
In a recent interview to Mint, outgoing managing director and chief executive K.V. Kamath said: “We are not out of the market. We will still be lending more than anyone else, probably except for the largest bank (State Bank of India). This is not transmitted to growth in balance sheet.”
“The market share of private banks is expected to come down as the largest player, ICICI Bank, is not growing its book aggressively. This will impact the credit growth numbers of private banks,” said a banking analyst from a Mumbai-based brokerage, who did not want to be named.
The story is different for some foreign banks, though. “Foreign banks’ cost of funds are higher than that of public sector banks as they lack diversified presence,” said the chief executive officer of a foreign bank on condition of anonymity. “Hence the interest rates charged will also be higher, and corporates in such an environment will want to go to the cheapest possible source.”
Neeraj Swaroop, regional chief executive, India and South Asia, Standard Chartered Bank, said the bank has not been as severely affected by the global slowdown and it continues to have growth rates of 20%.
Other private banks, such as Yes Bank Ltd, are stepping into the breach. “There is a lot of replacement demand being generated as big players are withdrawing from the market as they had over-extended themselves in the past,” said managing director and chief executive officer Rana Kapoor.