The going may not be good for the banking industry during the current financial year. With the government and Reserve Bank of India indicating that steps would be taken to curb inflation, banks are expected to witness a sharp slowdown in credit growth.
Credit, which grew at about 21% in 2007-08, may witness a deceleration in the current financial year as interest rates are set to rise. Analysts said that growth in credit could well drop to a level of 15-16%, if RBI decides to take stringent monetary steps to rein in inflation.
Finance minister P Chidambaram has already said that the government would attach top priority to curb inflation even if that meant slowing down the economic growth. This may in turn lead to a decline in investments.
Infrastructure and exports are likely to drive credit in 2008-09. Clearly, bankers feel that demand for real estates and consumer durables will decline. Notably, in 2006-07, the banking industry registered a credit growth of 31%.
Saugata Bhattacharya, vice president, business and economic research, Axis Bank. told FE that inflationary pressures are likely to continue though it would come down from the present level of 6.68% recorded last week.
PK Gupta, chairman and managing director, United Bank of India said that there is uncertainty at present. ?We need to wait for RBI?s monetary policy before forming any informed opinion,? Gupta pointed out.
A banking industry source said that banks are likely to see slowdown of businesses in the current financial year. This financial year is not going to make banks happy though this is just the beginning of the year and the scenario may change at a later stage.
Though economists said that inflation would ease once the international prices soften, the increase in exemption limit if personal income tax in India in this year?s budget may keep the inflationary pressure on at a later stage of 2008-09 as well.