Top public sector banks are betting on small businesses and individual borrowers for a revival in credit offtake in 2015-16 too, even though such a reliance had sent targets awry in 2014-15 as strong growth in these segments was not enough to bolster overall disbursals.
Overall loan growth last year was 8.6%, the lowest in over two decades; banks had lent R60.43 lakh crore of which R26.7 lakh crore was to industry, a rise of just 5.6% over FY14. If the retail loan portfolio for the banking sector is to grow 10% this year, banks need to lend around R11,000 crore.
Bank of Baroda, Union Bank of India, Punjab National Bank and Central Bank of India will push credit to small and medium enterprises, and retail customers to grow their overall loan book by 12-15% in FY16. The credit growth of these PSBs had fallen to 8-12% in FY15 — Central Bank of India ‘s loan book grew a dismal 6.35% — despite a double-digit growth in retail loan book. For private banks already enjoying traction in retail credit, the segment will continue to drive overall offtake.
Ranjan Dhawan, the managing director and chief executive officer of Bank of Baroda, has outlined a commercial strategy to push retail credit and increase its share from the current low 14% in the overall loan book. “There is not much demand from the corporates, apart from the commercial real estate and there is a limit to that too,” he said. Indeed, the retail loan book will in turn be driven by housing loans, the safest and easiest bet, according to bankers.
BoB total loan book stood at R4.3 lakh crore, of which R52,488 crore was retail as of March end. To achieve the 15% targeted credit growth for FY16, the bank will have to lend an incremental R60,000 crore in 2015-16. It may have to grow its retail book at a pace double than the 14% seen in FY15.
Union Bank of India will rely on its fast-growing MSME portfolio besides retail to boost credit growth. The share of SME borrowers in the bank’s total loan book was 21% in FY15. “MSME, retail and agriculture will be the drivers of credit growth for us. For the last five quarters, we have seen a growth of 24-32% in these three segments and this will continue,” said Arun Tiwari, the chairman and managing director of the bank. Tiwari believes that with his strong network of 4,078 branches, the bank would be able to increase its market share in retail loans. Tiwari wants to increase the share of agriculture, MSME and retail in total loan book to more than 49%.
Central Bank of India and PNB, too, will follow a similar strategy. Both the PSBs are targeting retail borrowers. But as these PSBs play catching-up to already established private lenders in the retail space, they will face stiff challenges. “There are challenges to focus on retail, but let us see. The NPAs are low and that is a big plus,” said RK Goyal, the executive director with Central Bank of India.
Outstanding retail loans for the whole banking sector was R12 lakh crore as of March end and has grown 15% in the last three financial years. With the pie growing at 15%, banks will compete for market share which could topple targets for some. Loans to MSME sector was an outstanding R5.1 lakh crore as of March end. The industry’s MSME portfolio has seen a growth of around 15% over the last three years.
But PSBs would do well to continue their push for corporate loan growth as well given the sheer size of the disbursals and the large existing base. In fact, the country’s largest lender, State Bank of India, will rely on a revival in corporate loan offtake to reach a 15% loan growth target for 2015-16. Dragged down by a massive fall of growth in its corporate loan book, the public sector lender saw its loan book expand a dismal 7.25% in 2014-15, far lower than the aggregate 12.6% growth of the banking sector.
“Another two quarters down the line we should definitely see a pick up, and the last quarter of the financial year… should be quite good,” said SBI chairman Arundhati Bhattacharya.
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