Banks see stable govt prospects boost loan demand

Banks see stable govt prospects boost loan demand

Mumbai: Indian banks expect demand for loans to accelerate as a Congress-led coalition, which defied predictions of a tight election, steps up the pace of economic reforms.

The Congress alliance took 261 seats, sweeping aside its nearest rival, the bloc led by the Hindu-nationalist Bharatiya Janata Party (BJP), which won only 159 seats.

“We will keenly watch the budget going forward. There will be more stress towards infrastructure, steel and consumer goods sectors, pushing up lending in these sectors," J.M. Garg, chairman and managing director of state-run Corporation Bank , told Reuters over phone.

“A stable government is good for the economy. We hope the budget will be growth oriented and help grow manufacturing sector and create rural demand," S. Sridhar, chairman and managing director of state-run Central Bank of India, said.

Loan growth has been slowing in Indian commercial banks. As on 24 April, loans grew to 18.10% from 24.01% on 2 January, Reserve Bank of India data showed.

A second term for the Congress-led alliance, without the Left this time around, is also expected to speed up pending legislation to raise the foreign investment limit in the insurance sector to 49% from the present 26%.

The legislation introduced in 2005 was scuppered after stiff opposition from communist parties, who provided the coalition government with a majority until withdrawing support last year.

B. A. Prabhakar, executive director at state-run Bank of India, said it would be a matter of time when insurance sector reforms would be taken up by the government.

Bank of India owns 51% in an insurance venture where Union bank of India and Dai-ichi Mutual Life holds 23% and 26% respectively.

Other banks in life insurance include State Bank of India, Canara Bank, IDBI Bank, and ICICI Bank.


Big scale financial sector reforms, especially allowing foreign banks to take strategic stake in private banks, are unlikely to happen any time soon, a research report by CLSA said.

Government may sell stake in public sector banks, allow them to raise capital in certain cases, and in due course, trigger a consolidation of PSU banks, the report said.

However, consolidation does not seem to be immediately on the cards so much as capital infusion, bankers and an analyst said.

“We do not expect drastic consolidation in banking space right now, but the push towards infrastructure will definitely lead to lending growth," Manish Shukla, banking analyst with India Infoline, said.

Smaller state-run Dena Bank does not expect large scale consolidation in the banking space.

Instead, it expects capital infusion from government to help get resources to meet growing loan book, R.L. Rawal, chairman and managing director of the bank said.

“I do not see large scale consolidation in the sector. Instead there may be some capital infusion to help boost capital adequacy," he added.