Economists' take: Bank loans likely to grow slow in FY13

Moneycontrol Bureau

Banks may not achieve the non-food credit growth of 17% as projected by the Reserve Bank of India (RBI) for the financial year 2012-13. A gloomy investment climate is acting as a deterrent to higher pace of loan growth. However, a softer rate of inflation can well be a trigger to turn the tide, said economists.
"We should see further deceleration in credit growth. It may come down below 16% in FY13. The cost of capital is still very high. At this point of time, it is very difficult to forecast. We expect RBI to cut policy rates by 100 bps in FY13. The economic recovery should happen in 2014," said Chetan Ahya, managing director - (Asia pacific economist) at Morgan Stanley while replying to Moneycontrol.com's query at a press briefing here in Mumbai.
The global financial services firm has predicted India's gross domestic growth (GDP) at 5.8% in March, 2013 and at 6.6% in 2014. According to a popular saying in the economy parlance, total credit growth (non-food + food) tend to be three times higher than the GDP growth.
It is inevitable, according Ahya, to let the growth go and bring down interest rates and ultimately, create room for investment led recovery.
Meanwhile, imminent monsoon holds hope for economists who believe that good rains will help douse the flames of high inflation. The wholesale price index rose to 7.23% in April from 6.89% in March 2012, driven by higher food and fuel prices.
"Though inflation is high but it is likely to go down as the pressure on crude and commodity prices is easing," D K Joshi, chief economist at Crisil Ratings told Moneycontrol.com.
"Moreover, inflation rate will fall in case non-rice and non-wheat food items drop supported by a good monsoon. However, a bad monsoon could play a spoilsport. At this moment, it is very tough to take call on the overall credit growth in the industry. The non-food credit may grow at around 16%. RBI is expected to cut policy rates by 50 bps in 2012-13," he said.
Despite some reduction in the rate of inflation since 2011, India continues to post highest rate among other Brics countries including Brazil, Russia, China and South Africa. In FY12, the non-food credit or the loan amount that banks give to individuals and companies, had expanded by around 16% to Rs 46.11 lakh crore.
"The first half of the fiscal year (2012-13) is going to be dry spell," said Arun Singh, senior economist at the consulting firm -- Dun & Bradstreet.
"Things should stabilize in the second half of the year. The growth looks achievable. However, the rate of inflation is a key downside risk to attain this credit growth. We expect RBI to cut policy rates by 75-100 bps in FY13. However, RBI may not do it with the present elevated level of inflation." Also read: Morgan Stanley estimates GDP growth of 5.8% in FY13 Saikat Das
saikat.das@network18online.com