Private, foreign lenders pull down credit growth

With foreign banks registering a paltry 4 per cent growth in credit advances for the financial year up to March 27, 2009 and private sector banks not doing much better at 10.9 per cent, the extent of credit slowdown is marked in these banks.

Advances by foreign banks in the financial year up to March 27 grew by Rs 6,483 crore (Rs 64.83 billion) to Rs 1,69,350 crore (Rs 1693.50 billion). Credit extended by private banks rose by Rs 51,559 crore (Rs 515.59 billion) to Rs 5,23,038 crore (Rs 5230.38 billion).

These figures compare poorly with the previous year, when annual credit growth in foreign banks and private banks was 28.5 per cent and 19.9 per cent, respectively.

Public sector banks continued to grow their advances at a healthy rate of 20.4 per cent, which is marginally lower than previous year's growth rate of 22.5 per cent. In the fiscal up to March 27, loans extended by them grew by Rs 3,41,442 crore (Rs 3414.42 billion) to Rs 20,11,591 crore (Rs 20115.91 billion).

Credit growth for the entire banking sector has fallen to a five-year low at 17.3 per cent.

The total outstanding loans of scheduled commercial banks, including regional rural banks, was Rs 27,70,012 crore (Rs 27700.12 billion) compared to Rs 4,08,099 crore (Rs 4080.99 billion) in the previous year.

Private and foreign banks have been accused of not passing on the benefits of a low interest regime to customers. Since October last year, the Reserve Bank of India has reduced the repo rate, at which the RBI lends money to banks, from 9 per cent to 5 per cent and the reverse repo rate, the rate at which the RBI pays banks for deposits placed with it, from 6 per cent to 3.5 per cent. The cash reserve ratio has also been reduced from 9 per cent to 5 per cent.

"We continue to see good opportunities in sectors such as power, infrastructure and telecom and have maintained a steady growth in credit advances," said M Narendra, executive director at the public sector lender, Bank of India.

Private banks such as ICICI Bank have sought to shrink their balance sheets, especially in the retail portfolio, after growing at an aggressive pace over recent years. Most foreign banks present in India are facing problems in their home markets.

The head of a foreign bank in India said banks are pricing a risk premium into loans to the corporate sector. He mentioned de-leveraging of the global capital markets and lack of transparency from corporates on currency exposures as other reasons why banks were not reducing loan rates.