Credit offtake likely to rise after this month

Loan disbursements, which dipped during the nine months ending May 2009, is expected to pick up post-September with an improvement in industrial activities, a top banking industry official said.

?Loan availability (during October-May) was not as per expectations,? Indian Banks? Association?s chairman MV Nair said, adding, with industrial production expected to pick up post-September, loan availability, both working capital and term loans, is likely to pick up.

Though loan sanctions of state-run banks have grown by 50% in October-May, there was very little offtake of loans due to slowdown in the economy, Nair told reporters on Tuesday.

?Loan sanctions, during October-May, have increased by 50%. This has come from small & medium enterprises, corporate and retail segments. But it was not as per expectations,? he said.

On a year-on-year basis, average loan growth in the banking industry is expected to be around 15% in 2009-10 against an average growth of 26% in the previous financial year, Nair said.

Continuing impact of the economic slowdown is likely to result in a rise in the non-performing assets of banks in the period ahead, but will be under manageable level, Nair, who is also the chairman of Union Bank of India, said.

Though the GDP growth in the first quarter was reported to be at a satisfactory level, still, the confidence yet to be back among the corporates.

Talking about the stand of state-owned banks on the topic, Nair said, ?We have sacrificed our net interest margin (NIM) while lowering our prime lending rates (PLRs). For example, Union Bank of India?s NIM came down to 2.3% during the period from 3%. Though all the indicators are reasonably positive in the country, we are concerned about monsoon at the moment, said Nair.

On interest rate scenario, Nair said no credit offtake took place at the required level as yet and there was no chance of any increase in the lending rates. ?I think the interest rates will remain stable for six months from now.

Private sector lender HDFC Bank on Tuesday said lower farm production due to weak monsoon is expected to pull down the country?s economic growth to 5.8%, lower than the Planning Commission?s estimate of 6.3% in the current fiscal.

?Drought in close to half of the districts under agriculture production is likely to take the output down by 3-5%. This should drive GDP growth for FY10 to 5.8%,? the bank said in a report.

However, during the first quarter of the current fiscal, the country?s economy expanded to 6.1% down from 7.8% posted in the same quarter a year ago.

The first quarter GDP release, though encouraging, is unlikely to sustain throughout the year, it said.

Even Planning Commission deputy chairman Montek Singh Ahluwalia admitted that growth would not be so good in the coming quarters, but expected GDP to expand to 6.3 % in the entire fiscal.

The report added that lower agricultural output in FY10 means that headline growth may see some moderation in the months ahead.

Robert Prior-Wandesforde, senior Asian Economist, The Hong Kong and Shanghai Banking, said India?s April-June GDP release was nowhere near as spectacular as some of the other Asian countries? Q2 figures but still a solid enough.

The 6.1% year-on-year growth rate was a notch below the market median but above the forecast and higher than January-March quarter when GDP rose 5.8%.

?By our calculations, total output was up a respectable 1.8% in quarter-on-quarter seasonally adjusted terms. Excluding agriculture, GDP rose 6.8% on the year, compared with 6.4% in the previous quarter ? the first improvement since the January-March quarter of 2008,?? he said. Looking ahead, the big downside risk is of course the impact of the drought; history suggests drought years have always seen big falls in agricultural output, averaging 3%. But with agriculture a smaller proportion of the economy and more land under irrigation now (40-45%), the hope is that the effect will be smaller this time.