And loan growth keeps falling…

Credit growth at banks has been continuously declining in the last seven months.

Data released by the Reserve Bank of India on Friday showed the trend continued in February, when growth in loans was just 15.4%, well below the 22.8% in the same period last year.

In January, the number stood at 15.9%.

One of the primary reasons for this, experts said, is the caution among bankers who are reducing their exposure to large corporates due to mounting bad loans, which are gnawing away at margins.

This is particularly so in the case of companies which are highly leveraged and those with a lot of unhedged foreign currency loans, said a senior official with a private sector bank.

Lenders have been hopeful of offsetting the decline by leveraging the retail loans segment. But even that segment was a laggard. Personal loans grew 11.4% in February against 16.2% last year.

“We will try to maintain 15% credit growth for the next fiscal, just like this. Retail credit can pick up but the crucial factor is how interest rates move. If inflation continues to be on the higher side then that may not help in pickup,” said P Sitaram, chief financial officer, IDBI Bank.

Large banks like State Bank of India sound a tad more optimistic. A Krishna Kumar, managing director, hopes to see an 18-20% growth in credit next fiscal, with a 20%-plus growth in the home loan segment.

ICICI Securities analysts Kajal Gandhi, Vasant Lohiya and Jaymin Trivedi said credit growth for the next financial year may come at around 16.7%.

The lower numbers have purely macroeconomic reasons.

“Raising the limit of infrastructure debt funds by two times to Rs60,000 crore may restrict the credit growth of banks to some extent. Besides, crowding out due to high government borrowing and non-performing asset pressure may also impact credit growth,” they said in a note on Wednesday.

That could goad the Reserve Bank of India to cut interest rates sooner, some feel.

Bank of India, for one, feels a rate cut at least by June would be vital to the expectations of the banking sector.

“If the cuts get delayed beyond that, then we may record slightly lower credit growth,” said Ravi Kumar, chief financial officer, Bank of India. The bank expects to log around 15% credit growth.