Growth in bank lending likely to be moderate

KOLKATA: Growth in bank lending is likely to be moderate in the next couple of years, according to Care Research -- a division of rating agency Care. The research outfit has estimated the growth in credit offtake to be around 15-17% for 2009-10 and 19-21% for 2010-11.

In 2008-09, banks credit growth has collectively shrunk to a five-year low at 17.3%, pulled down heavily by poor lending performance by foreign and private banks. Public sector banks grew their advances at a 20.4% rate, which is marginally lower than preceding financial year s growth rate of 22.5%. By comparison, foreign banks and private banks have notched up 4% and 11% growth respectively over the preceding fiscal.

Care Research expects PSBs to continue with their better-than-average lending show mainly due to the Centre s push for cheap credit and their stronghold in lending to corporate sector .

Credit offtake would be fuelled by growth in lending to the infrastructure sector, while retail credit would see a moderate growth, Care deputy managing director DR Dogra said, adding that the share of infrastructure loan portfolio to total bank credit is expected to improve to 11% in 2010-11 from 9% now.

Care believes local banks are adequately capitalised and are relatively better placed to face the current economic downturn. It expects banks deposit mobilisation would be moderate too at around 18% to 20% in 2009-10 and 2010-11.

It has observed that interest rate spread between the benchmark prime lending rate and deposits rate of more than one year maturity touched as low as 3% in November last year and is currently hovering around 3.5%. This will put pressure on banks net interest margin (NIM).

Reduced NIM and lower treasury gains coupled with higher provisioning for bad loans and increased wage costs for PSBs will have negative impact on their profitability, the research report said. It believes banks will see single digit profit growth for 2009-10.

It projects gross NPA to gross advances to increase to 4.25-4.50% by March 2011 from 2.3% now.