Credit offtake remains sluggish, infra lending to boost demand

The growth in non-food credit in the system has continued to be sluggish. The credit in non-food segment rose 20% year-on-year during the the fortnight ended September 10, which is 19 bps higher than the previous fortnight ending August 27.

Banks incrementally lent total amount of Rs 31,532 crore during the fortnight. The latest RBI data released on Wednesday shows, total outstanding credit, which has grown by 19.77% is now pegged at Rs 33,82,928 crore for the same reporting fortnight.

The Reserve Bank of India in its annual credit & monetary policy has projected a credit growth of 20% for the current fiscal..

The bankers though have expressed concerned about the sluggish offtake in credit, but exude confidence to reach growth targets. The expected boom in infrastructure sector is also fuelling optimism among the bankers.

BA Prabhakar, ED, Bank of India (BoI), said, ?Credit pick-up is not so strong as expected. Actually, many companies are raising funds for their expansions either through equity market or through external commercial borrowings. However, some short-term loans might have helped pick up the credit off-take during the fortnight?

BoI which extended a special home loan scheme till December 31, 2010; is currently witnessing a credit growth at around 19.6%. ?We expect to achieve 20% credit growth during the year 2010-11. We try to push our credit growth through retail loans too,? Prabhakar added.

Canara Bank HSU Kamath ? ED, said, ?Credit growth is happening mostly in infrastructure sector. Moreover, growth can also be seen in sectors like iron and steel as well as real estate. Our loan book is growing at 21% and we expect to grow our book by 22% for the 2010-11.? The bank is also witnessing good growth in SME and retail sectors.? However, following the latest round of hikes of key rates, State Bank of India (SBI) in its mid term review has revised its credit growth target downward by almost 3% during the fiscal Confirming the development to FE, SS Ranjan, chief financial officer, SBI said, ?We have moderated our credit growth target to 18% from 21% projected for the current fiscal.??

Earlier, SBI had expected most of the growth in its loan book coming from the retail space including home loans and auto loans, rates for which are set to rise as the banks are getting ready to hike their lending rates after RBI raised key rates to curb double digit inflation. Earlier, OP Bhatt, chairman, SBI had said that the bank?s retail loan book was growing at 20-21% year-on-year and should pick up further in the upcoming festival season.

Recently, the Reserve Bank of India hiked its policy rates by 25-50 basis points in its last monetary policy held on September 16. RBI increased repo rate by 25 bps, the rate at which it lends to the banks while the reverse repo rate at which banks park their excess funds, was hiked by 50 bps. Following this, banks resorted to a series of rate hikes both on deposit and lending fronts.