Infrastructure lending top priority of commercial banks

Infrastructure lending top priority of commercial banks

New Delhi: Led by power, roads, ports and telecom sectors, credit disbursement by banks to infrastructure sector grew at an impressive compound annual growth rate of 31% during the last six years but maximum growth in credit was witnessed in the last two years at 43% and 36% according to Assocham’s Pulse (AEP) Study on ‘Bank credit to infrastructure sector’ for the FY 2000 to 2007 .

The study covered iron and steel, construction, petroleum, power, telecommunication, roads and ports. It revealed that compounded growth in credit disbursement was highest in power sector at the rate of 58% followed by roads and ports at 46%. Credit allocation to telecommunication sector grew at the rate of 34.4% during the six-year period taken up by the study.

Credit in infrastructure has gone up three times over in two years

Even as massive investment of $384 billion is needed to boost infrastructure sector . Fast increase in credit off take to this sector in the last two years has fuelled GDP growth at a record level of 9% in 2005-06 and 9.2% in 2006-07. Amount of credit to infrastructure sector in the last two financial years was Rs1,87,337 crore and Rs2,56,056 crore as compared to Rs46,536 crore in the year 2000.

Total non-food bank credit in FY 2006-07 was Rs17,52,439 crore, of which credit disbursement to infrastructure sector was Rs2,56,056 crore. Over last six years, proportion of bank credit to infrastructure sector has increased from 10.8% to 14.6%.

While credit allocation to power sector increased from Rs38,744 crore in 2004-05 to Rs57,863 crore in 2005-06, rate of growth declined from 97% to 50% in the same period.

Bank credit to telecom increased at a compound annual growth rate of 34.4%. It increased from Rs15,794 crore in 2004-05 to Rs17,713 crore in 2005-06, although rate of growth declined from 87.8% to 12% respectively.

Roads and ports saw a secular trend of increase in last six years indicating rising importance of ‘infrastructure sector’ in credit allocation chart of banks. Credit distribution for building roads and ports increased from Rs14,472 crore in 2004-05 to Rs18,975 crore in 2005-06, recording compound annual growth rate of 46%.

According to a recent RBI estimate, combined deployment of bank credit to power, telecommunication and roads and ports increased by whopping 60% from Rs89,946 crore in 2005-06 to Rs1,43,520 crore in 2006-07.

Construction, is another sector which witnessed unabatedly high growth in the bank credit disbursements. While compound annual growth rate of credit to construction for the last six years is 30%, boom in housing and commercial real estate activity led to a rise of 70% in 2005 and 45% in 2006 in credit intake. Allocation of bank credit to this sector increased from Rs13,867 crore in 2005-06 to Rs20,123 crore in 2006-07.

Petroleum sector registered CAGR of 18.3% during FY 2000 to 2007. It received relatively less attention of commercial banks than other infrastructure sectors, as growth rate of credit allocation to the sector declined from 54% in 2005-06 to 20.4% in 2006-07.

Credit allocated to iron and steel sector increased from Rs50,385 crore in 2005-06 to Rs63,374 crore in 2006-07. Annual growth rate of this sector was 40% in 2005, which declined to 25% in 2006-07 as the CAGR for six-year period was 19%.

Total outstanding credit to infrastructure sector for 2000-2007 is Rs869512 crore, around 31% of total credit by commercial banks.