Credit growth reviving but banks must ensure quality of loans, says N.S. Vishwanathan1 min read . Updated: 07 Feb 2018, 01:53 AM IST
The govt's recapitalization of public sector banks along with signs of slower additions to the bad loan pile have improved the prospects of the banking sector, said RBI deputy governor
Mumbai: Bank credit growth is clearly showing signs of revival but lenders must ensure the quality of loans is maintained, said Reserve Bank of India (RBI) deputy governor N.S. Vishwanathan.
Speaking at Mint’s 11th Annual Banking Conclave, he said that the government’s recapitalization of public sector banks along with signs of slower additions to the bad loan pile have improved the prospects of the banking sector.
Last month, the government formally kicked off banking reforms, linking Rs88,000 crore of capital infusion in ailing public sector banks to a set of performance metrics.
“Capital infusion will enable them to lend more and accelerate credit growth and what we believe is that the quality of credit growth is of a high order, so that we do not create the kind of problems we are facing right now," Vishwanathan said, adding that credit growth had picked up since October after a period of subdued growth.
Data on the RBI website shows that on a year-on-year basis, non-food bank credit increased by 10.0% in December as compared with a 4% growth in the same period last year.
Sector analysts said that higher growth is due to the base effect as last December, demonetization had hit loan demand. However, bankers pointed out that while demand for retail loans has remained firm throughout, that from the corporate side has improved.
Bankers argued that while capital expenditure has not picked up, government spending may give it a boost.
On non-performing assets, Vishwanathan said that the sector is witnessing a deceleration in the rate of loan slippages.
“Hopefully, we will have a system where along with the credit growth that we are seeing, there is some kind of stability around the NPA numbers. We are looking at a much more positive outlook for the banking system in India," he added.
Indian banks are sitting on a stressed asset pool of over Rs10 trillion.
Keeping these developments in mind, RBI on its part will monitor banks and the regulations will always be line with international requirements and consistent with domestic needs, Vishwanathan said.
“Going forward, I do see more dynamism in the banking system. There is room for optimism, but of course, as usual, in banking you cannot but be cautious," he added.