Banks set to miss 18% credit growth forecast

Banks appear set to miss even the revised projection of 18% credit growth for this fiscal made by the Reserve Bank of India (RBI).

In its first quarter review of the monetary policy held in July, the apex bank had lowered the credit growth projection from 19% earlier. But even the reduced projection may be too much to expect given the high interest rate scenario and a slowing economy, say experts.

“In line with the downward revision of gross domestic product growth estimate (from 7.6% to 7%) and ongoing moderation in credit demand so far into the fiscal, we are lowering our credit growth estimate to 16.5% with a downward bias,” Bhavesh Kanani, analyst, Centrum Broking said in a report.

Importantly, the prolonged moderation in economic growth is likely to translate into a weaker second half of FY12 in terms of credit growth, said Kanani.

Data released by the apex bank on Wednesday show bank credit rose 3.92% in the first six months of the current fiscal to Rs40,93,154.97 crore, way below the 5.59% growth recorded in the same period last fiscal.

A few bankers conceded to DNA that their individual credit growth targets for this fiscal may not be achieved.

“We have our credit growth target for this year at around 20%. It looks a little difficult to achieve this,” said a senior official of a public sector bank, who did not wish to be named.

Some others, however, maintained that the slower credit growth was a matter of conscious decision.

“As part of our three-year strategy, we don’t want to cross 15% credit growth this year. We want to keep the deposit growth low and build our current account savings account ratio,” said P Sitaram, chief financial officer, IDBI Bank.

State-owned IDBI Bank also wants to promote its priority sector lending as part of the same strategy, he said.

A significant reason for the slower credit growth is also that corporates are shying away from banks, preferring instead to raise funds through private placement of bonds, which works out cheaper. Indications are this trend will continue for a while.

“Bank interest rates are high due to which corporates are going for cheaper sources of funds. There is also a slowdown in the expansion plans due to which capital requirements have come down a tad,” said HD Khunteta, chairman, managing director and director (finance), Rural Electrification Corporation (REC).
REC plans to raise `2,000 crore this month by way of private placement of corporate bonds. “The annualised coupon rate is 9.35% and the tenure is 5 years,” said Khunteta. The issue is expected to hit the market on Friday.