Joel Rebello 
 
Mumbai: Bankers are getting used to a lower trajectory of credit growth. After seeing record growth from 2005 to 2007 — 31.77% and 30.29% respectively — they have set their sights on a less ambitious 20-22% loan growth target for 2008-09.
The financial year 2007-08 saw credit demand grow at a rate of 23.5%.

This year, the growth drivers for the banking sector would be corporate loans and big ticket loans for large scale infrastructure projects in the country.

Two years ago, the good loan harvest was reaped on the back of retail lending. But now, the global economic downturn and last year’s due interest rate-hikes by the Reserve Bank of India are likely to take a toll on loan disbursements.

The RBI has hiked the cash reserve ratio (CRR), the mandatory amount that banks have to keep with the central bank, seven times since December 2006. The last hike, for 25 basis points, was announced during the bank’s annual monetary policy review on April 29.

Its persistent increase of the key lending rate last year made loans expensive for retail customers, resulting in higher rate of defaults. Retail banks chose to sacrifice growth and turned cautions, going slow on risky loans.

As a result, large retail-focussed banks like ICICI have seen credit growth drop to a mere 15% in 2007-08 from 30% seen in 2006-07.

Chanda Kochhar, joint managing director and chief financial officer, ICICI Bank expects credit growth for the bank to remain at “14-15%” in 2008-09.

Retail loans for the bank expanded just 3% in 2007-08, compared to a 20% expansion in corporate loans.

ICICI’s public sector rival, State Bank of India, is confident of a 22-24% growth in credit this year, despite an expected slowdown in economic growth. That’s because, besides its traditional strength in corporate loans, SBI is also expecting to leverage its large network to step up on retail lending, particularly housing loans.

“Genuine demand for housing loans still existed, while speculative demand for these loans had receded. The demand in some pockets like Gurgaon was saturated, but the middle class in tier-II and tier-III towns, where ticket size was small, still sought credit,” SBI chairman O P Bhatt told reporters at the sidelines of the banks’ result announcement last week.

Smaller banks like private sector Axis Bank and public sector Dena Bank are confident of doing better than their bigger rivals on account of a lower base.

Sisir Chakrabarti, president, credit, Axis Bank, expects the bank to clock 30% credit growth in 2008-09, helped by credit growth from the corporate sector. In 2007-08, the bank’s corporate book grew 35% while the retail book grew only 20%.

P L Gairola, chairman and managing director, Dena Bank is also expecting an above average 25% growth in 2008-09, helped by growth in the “agriculture, SME, retail and infrastructure sectors in that order.”

Last year’s Dena Bank’s agriculture book grew by 28% while SME grew by 26-27%, Gairola said.

Union Bank of India, on the other hand expects credit growth to be at 22% in 2008-09 a slight improvement from 2007-08’s 19% growth.

Source : DNAIndia