Credit growth slows to a trickle, banks take a hit

Even without the Reserve Bank of India (RBI) wanting banks to lend at a slower pace this year, credit growth is beginning to slow. The increase in non-food credit, between March 25, 2011, and July 15, 2011, has been just 1.65%, according to data put out by the Reserve Bank of India (RBI).

Banks lent an amount of R63,740 crore to companies and individuals which is lower than the R1.22 lakh crore lent in the corresponding period last year.

It must be remembered, though, that the banks had lent around R60,000 crore to the telecommunication companies last year for 3G licences.

On Tuesday, the RBI revised the projection for the growth in non-food credit growth to 18% for the current year from the 19% that it had announced earlier. But even otherwise, bankers have been complaining about business being dull.

?If you look at year till date numbers we haven?t really grown too much and one has to wait and see whether demand for money picks up,? MD Mallya, CMD, Bank of Baroda, said on Tuesday after the RBI upped the key policy rate by 50 basis points to 8%.

Like other bankers, Mallya, too, has pointed out that the loans being disbursed pertain to sanctions given a few months ago. ?New projects are not really taking off,? Mallya said. Chanda Kochhar, CEO and MD, ICICI Bank, too, pointed out that the credit growth in the first quarter of this year had seen signs of moderation.

The slowdown in the home market apart, bankers are worried that they would lose out on business from top corporates which would prefer to access the overseas markets for their requirements. ?These days corporates are saying they don?t want rupee denominated credit. Instead they are asking for a guarantee so that they can access three year loans from overseas markets,? Pratip Chaudhuri, chairman, State Bank of India (SBI), said.

Indeed, credit off take rose at a lower pace of 18.66% year-on-year in the fortnight ended July 15, 2011, compared with an increase of 19.5% year-on-year in the preceding fortnight ended July 1, 2011.

The outstanding non-food credit for the banking system fell to R39,38,116 crore in the fortnight ended July 15, 2011 a drop of R68,603 crore over the previous fortnight.

Deposits too grew at a lower pace of 17.96% year-on-year during the fortnight ended July 15, 2011 compared with a rise of 18.4% year-on-year in the fortnight to July 1, 2011. Outstanding deposits for the industry fell by R71,438 crore during the fortnight to R54.17 lakh crore.