Here's how latest bank credit grew in May 17 fortnight

Saikat Das
moneycontrol.com

The non-food credit or the amount banks lend to individuals and companies rose at a slower pace by 14.30 percent year-on-year to around Rs 52.61 lakh crore for the fortnight ended May 31, 2013.

During the fortnight, loans expanded by Rs 51,000 crore as against a de-growth of Rs 14,500 crore recorded between May 17 and 03. Since Apri 05, 2013; the non-food credit inched up marginally by Rs 12,800 (in absolute terms) to Rs 52.61 lakh crore.

Also read: RBI plans to revive stressed loan market for banks, ARCs

Deposits grew 13.40 percent y-o-y to nearly Rs 69.70 lakh crore during the same time. Banks increased deposit base by 92,200 crore in the 15-day period. The time between April and September is considered as a lean period. Credit demand generally picks in the busy season from October to March.

"Currently, credit demand is not very promising," Ashok Gautam, senior vice president and head, global markets – treasury at Axis Bank told moneycontrol.com.

"Despite this, banks are not finding it easy to raise deposits. At the same time, it is difficult for them to further cut deposit rates. The liquidity situation needs to improve which will be reflected when the operative policy rate starts to shift from repo to reverse repo," he said.

The central bank had projected 15 percent growth in the industry non-food credit and 14 percent in deposits for 2013-14.

After having burnt their fingers in corporate loans, banks are focusing more on retail loans including home, auto and personal segments. India's largest lender the State Bank of India reported nearly 15 percent y-o-y growth in retail loans to Rs 2.10 lakh crore in FY13 compared with 11 percent growth in FY12.

Recently, state-owned Bank of Baroda launched a new home loan product that offers loans at its base rate of 10.25 percent irrespective of any amount and tenure. Banks generally add spread over and above their base rates to sell home loans. It is learnt that other banks too are devising strategy to expand their retail loans.

Infrastructure sector, which forms a significant chunk of industry credit, is yet to show up. Banks are still averse to the idea of sanctioning fresh loans in this sector due to absence of adequate policy reforms.

According to global rating agency Fitch, the gross non-performing asset (NPA) ratio for banks are set to inch up to 4.4 per cent this fiscal year from the likely reading of 4.2 per cent in 2012-13. In 2012, the gross NPA ratio for all scheduled commercial banks stood at 3.1 percent at Rs 1,42,300 crore as against 2.39 percent at Rs 84,700 crore in 2010.

saikat.das@network18online.com