Retail loan growth drops to single-digit in FY09

Services and personal loans pulled down the non-food bank credit growth to 19.5 per cent at the end of February 27, 2009 as against 22 per cent a year ago.

Growth in advances to micro and small enterprises also declined sharply to 35.4 per cent by February this year as against 67.4 per cent in the corresponding period a year ago with banks wary about the rise in non-performing assets (NPAs) during the economic slowdown.

According to the latest data released by the Reserve Bank of India (RBI), overall non-food credit stood at Rs 24,92,685 crore (Rs 24926.85 billion) and it was much below the central bank's revised estimate of 24 per cent.

But growth in loans to non-banking financial companies (NBFCs) remained high with the RBI forming a special purpose vehicle to support this cash-strapped sector. Also, advances to commercial real estate saw a surge as demands for loans from companies were high.

The overall credit growth in agriculture and priority sector stood at 21.5 per cent and 19.2 per cent while loans to industry stood flat at 25.8 per cent.

Industry absorbed 52.5 per cent of the incremental non-food credit as against 45.2 per cent a year ago. It was led by infrastructure, petroleum, coal products and nuclear fuels, iron and steel, engineering, construction and chemical and chemical products industries.

On a year-on-year basis, credit to the petroleum sector grew by 78.2 per cent by February 2009 as against 23.3 per cent in the corresponding period a year ago. Bankers said that the huge demand from the oil companies was in the absence of fresh oil bonds.

At the same time, small enterprises – including small industrial and services enterprises – attracted 15.4 per cent of the total incremental non-food credit as compared with 19.2 per cent in the same period last year.

Credit to infrastructure dropped to 35.1 per cent by February this year as against 42.1 in the corresponding period a year ago. The infrastructure sector alone accounted for 31.3 per cent of the incremental credit to industry as compared with 33.2 per cent in the corresponding period of the previous year.

During the third quarter of the financial year, many projects were hit by the economic slowdown and the high interest rates charged by banks.

Credit to agriculture and allied activities went up by 21.5 per cent at the end of February 27, 2009 as against 16.4 per cent at the end of February 15, 2008. The agricultural sector used 13 per cent of the incremental non-food bank credit as compared with 9.2 per cent in the corresponding period a year ago.

With a deceleration in loan growth to housing, credit cards and consumer durables, personal loans growth fell to 8.5 per cent by February 2009 as against 13.2 per cent a year ago. Personal loans accounted for 10.7 per cent of the incremental non-food credit.

Advances to textiles, food processing and infrastructure witnessed a slowdown in fresh sanctions as these are the sectors badly hit by the global turmoil.