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  1. Banks’ loan growth falls to lowest in decade

Banks’ loan growth falls to lowest in decade

Loan growth last year crawled to 10.3%, its lowest in at least a decade, reports Shakti Patra in Mumbai.

By: | Mumbai | Updated: June 10, 2016 6:59 AM
The loan books of private sector banks grew at a faster pace than at their public sector peers; the former also loaned more in absolute terms, probably for the first time. (PTI) The loan books of private sector banks grew at a faster pace than at their public sector peers; the former also loaned more in absolute terms, probably for the first time. (PTI)

Loan growth last year crawled to 10.3%, its lowest in at least a decade, reports Shakti Patra in Mumbai. The amount lent by banks — public, private and foreign — in FY16 was smaller at Rs 6.96 lakh crore compared with Rs 7.58 lakh crore in the previous year.

The loan books of private sector banks grew at a faster pace than at their public sector peers; the former also loaned more in absolute terms, probably for the first time.

Also Read |  Bad loans: Here’s how govt is looking to solve banking crisis

The pace of non-food credit — or money lent to companies and individuals — lost momentum partly because state-owned lenders were focused on cleaning up their balance sheets and partly because opportunities to lend were few and far between. Between them, banks set aside Rs 1.8 lakh crore as provisions for loan losses; this amount was Rs 95,000 crore in FY15.

Moreover, since banks were reluctant to drop interest rates, it was cheaper for firms to borrow in the bond markets. On average, a AAA-rated PSU could pick up 10-year money at 50 basis points lower in FY16, according to data sourced for FIMMDA. As such, compared with Rs 4.04 lakh crore in FY15, Rs 4.6 lakh crore was mopped up by firms via bonds in FY16.

FY16 was the fifth successive year in which non-food credit grew at a slower rate compared with the previous year. The outstanding non-food credit at the end of FY16 was Rs 74.29 lakh crore versus Rs 67.33 lakh crore a year earlier.

“Our loan book shrank in FY16 because our primary focus was to recover bad loans,” Melwyn Rego, MD & CEO, Bank of India, observed after the bank posted a net loss of over Rs 6,000 crore for FY16. Provisions during the year more than doubled to close to Rs 14,000 crore. Gross non-performing assets for the banking system stood at Rs 5.9 lakh crore, nearly twice the level of Rs 3.1 lakh crore at the end of FY15.

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