Banks' credit growth marginally up in first half

Credit growth in Indian banks grew 1.2 percent as of September 7 from the start of the financial year in April, picking up marginally from the muted growth seen in previous months, central bank data showed.

"There is slight improvement on retail loans, as banks had cut lending rates on vehicle and home loans, so the consumption credit has gone up," said a senior official with a public sector bank.

Banks' loans grew 1.2 percent as of September 7 since the beginning of April, while deposits were up 3.7 percent, according to data released by the Reserve Bank of India on Thursday.

Loans from banks have picked up since the 0.6 percent growth from the begining of April to August 24, according to Reuters calculations of the previous RBI data.

The RBI, in its mid-quarter review of the monetary policy on Monday, cut the cash reserve ratio, or the share of deposits banks must park with the central bank, by 25 basis points, to inject about Rs 17000 core into the banking system.

"The CRR cut will lead to multiple credit expansion and we should see further pick-up in loan growth," the official with the state-run bank said.

On Wednesday, the country's largest lender, State Bank of India, cut its base rate, the minimum interest rate at which it lends, by 25 basis points to 9.75 percent, effective Thursday.

"SBI's 25 basis points lending rate cut strengthens our call that the RBI's CRR cuts/OMO (open market operations) will soften lending rates to revive growth," said Indranil Sengupta, India economist at Bank of America-Merrill Lynch, in a research note on Wednesday.

The central bank forecast a credit growth of 17 percent and deposit growth of 16 percent for the full fiscal ending in March 2013.

Last week, the government announced big bang reforms as part of package of measures, which included opening up the supermarket sector to foreign chains, and hiking diesel prices, aimed at reviving economic growth.

Bankers expect these measures to revive investment sentiment, but credit growth may not see a significant pick-up in the rest of the year due to the ongoing political uncertainty, they said.

Typically, banks see higher demand for credit in the second half of the fiscal year, but bankers expect the credit growth to fall short of the RBI projection this year due to the slowdown in economic activity.

As of Sept 7., banks' credit stood at Rs 4749600 crore, marginally higher than Rs 4721790 crore two weeks ago, while deposits were at Rs 6321026 crore, up 0.5 percent.