Bank of India sees subdued growth in corporate loans

By Swati Pandey

MUMBAI (Reuters) - State-run lender Bank of India expects a subdued growth for its corporate loan book in the coming quarters and will be cautious about lending to risky sectors, senior officials said, as increased provisions due to debt restructuring and credit losses hurt the bank in October-December.

Corporate loans of the bank, which posted a 10 percent rise in net profit and a 4 percent growth in net interest income in the December quarter, currently accounts for about half of its total assets.

The pace of growth of its corporate credit slowed in the quarter, rising 9.6 percent compared with retail loans that grew about 15 percent.

"We are living in an environment where debt restructuring is part of the game," Executive Director N. Seshadri told reporters.

"There is a stress, pressure on margins because of provisioning but we are going aggressively on recovery of small accounts to make up for that," he said.

Bank of India's total restructured loan book stands at 114.8 billion rupees, of which about 22 billion rupees were restructured in the December quarter, Chief Financial Officer Ravi Kumar said.

Provisions for bad loans almost tripled to 3.33 billion rupees from a year ago, impacting its profitability.

The Reserv Bank of India has raised policy rates 13 times between March 2010 and October 2011, slowing demand for credit in Asia's third-largest economy and triggering worries about pile-up of bad loans and pressure on profit margins for banks.

National carrier Air India, rival Kingfisher Airlines , and shipbuilder Bharati Shipyard Ltd have been among the prominent companies that have restructured, or are looking to restructure, huge borrowings.

Bank of India considers its account with Kingfisher as non-performing after the loss-making airline failed to service its debt for more than three months.

Share of restructured loans for Indian banks is expected to rise to 7-8 percent of total assets in 2011 and 2012 from 4.4 percent seen after the 2008 crisis, Fitch Ratings said in a note this week.

It expects credit losses to be contained but state-run banks' profits may take a 15-20 percent hit due to higher loan loss provisions.

"We continue to be cautious. We are also trying to contain our exposure to risky sectors," said Alok Misra, chairman and managing director of Bank of India.

He sees stress in the aviation, textile, steel and power sectors.

Its shares, which have a market capitalisation of $3.7 billion, rose nearly 7 percent after the results before closing up nearly 3 percent at 352.75 rupees in Mumbai trading.

(Reporting by Swati Pandey; Editing by Rajesh Pandathil)