By Kshipra Petkar
The banking system is fine with the foregoing credit growth and is ensuring that net interest margins are protected, Sanjay Kumar Agarwal, senior director at CARE Ratings, said.
“Right now, banks are trying to ensure that NIMs (net interest margins) are protected. They may be able to do it for a quarter or two months. Beyond that, I think the downward pressure on NIMs will start.”
Several banks are reducing deposits rates, but not much is happening on the lending front, he said. This is because the demand is low from segments such as housing, car and corporate, among others. Agarwal said private banks are very clear that they would let credit growth lag deposit growth. But, in the case of public sector banks, there are mixed discussions.
According to Reserve Bank of India (RBI) data, weighted average lending rates on fresh rupee loans for scheduled commercial banks were down 20 bps since the RBI cut rates in February and fresh term deposits rates were down 44 bps during the same period.
“For sectors such as renewables and roads, there is a steady demand, but again there is supply of money from the bond market. Housing is slightly weak – that is one figure everybody should watch out for. MSME demand is there, but it has to take its own shape,” Agarwal said. He expects the future demand for credit to come from the MSME and manufacturing sectors.
He said bank lending to smaller and mid-sized NBFCs has picked up. “The mid and the lower segment is almost entirely dependent on banks, and banks have now become comfortable. For almost 6-9 months, the route was restricted. Now they have started lending.”
According to Agarwal, the stress in the microfinance sector remains which may ease in one year.