High inflation, global market turmoil & concerns over assets quality lead lenders to peg target at 20 per cent.
The rising inflation, global economic uncertainty and concerns over the asset quality have tempered banks in fixing conservative credit growth targets for the new financial year.
While banks are busy firming up business plans for 2008-09, some of them have already conveyed to the Reserve Bank of India about prospects of a moderation in the credit growth. In March, many banks held talks with RBI on resource conditions and growth prospects.
In fact, Bank of India has already scaled down the estimate for the current financial year to 17-18 per cent compared with the 24 per cent rise it had targeted in the just-concluded financial year, for which the data are still being collated.
"We will like to consolidate and improve the quality of assets," said BoI Chairman and Managing Director T S Narayanasami, adding that the bank wanted to be more cautious in lending this year.
A senior Canara Bank official said, "Since there is a feeling that the pace of economic growth will moderate in 2008-09, it will reflect on credit demand also."
The bankers, he said, estimated the credit flow to rise 20-21 per cent during the last financial year, though RBI had targeted 24 per cent growth.
Even in the current financial year, the growth rate is estimated to be around the 20
per cent level.
With signs of demand also slowing down, companies were expected to have a lower appetite for fresh capital investment, resulting in an overall moderation in the credit demand, added a banker.
It is not just uncertain economic prospects and inflation, but cost of resources and asset quality that are also important issues before banks in the current financial year. The risk management and assessing the capital requirement to meet the Basel-II norms will top the agenda.
"This will put pressure on capital as they begin to put in place risk management systems in earnest. The benefit of such an exercise will return to sanity," said a middle-level executive of a Mumbai-based public sector bank.
Indian Banks' Association Chief Executive H N Sinor said the focus in the present financial year would be on restructuring assets and liabilities to ensure better returns.
The days growing the balance sheet size with less focus on attendant risks seem to be over. This is applicable to private banks as well as public sector banks.
Taking benefit of business opportunities thrown up by over 9 per cent annual growth of economy for the last three years, many banks grew there credit book by 30 per cent.
