2014 sees slowest start to festival season in at least 7 years
Festive fervour ahead of Diwali appears to have done little to support banks’ sagging credit growth. Despite attractive interest rates being offered and processing fees getting waived, lenders’ credit at the start of this year’s festival season has grown at the slowest rate in at least seven years.
According to latest data, loans offered by banks during the period between August and the third week of September increased by a mere Rs 17,800 crore (Rs 178 billion)) on an annual basis, compared with Rs 1.08 lakh crore during the comparable period of last year.
Punjab National Bank executive director Ram Sangapure cites low corporate demand as a reason for this slow pace of credit growth in the country’s banking system. “Corporate credit is yet to pick up. This has affected growth for the overall system. The numbers look dismal because companies have not participated in the recovery so far. In fact, demand from corporate houses, especially those from the steel, textiles, power and coal sectors, has come to a standstill.”
On a year-on-year basis, the present rate of growth in bank credit has been the slowest since June 2011, thanks to an economic slowdown. According to data from the Reserve Bank of India, annual credit growth had fallen to a single-digit rate of 9.7 per cent as of September 19, compared with 17.6 per cent in the year-ago
The central bank has pointed out that the corporate sector is moving to alternative sources for their funding needs and tapping the commercial paper market. The resources raised through commercial papers this year, according to RBI, are “significantly” higher than last year. Financing from other sources like foreign direct investment and external commercial borrowings has also increased, RBI said in its bi-monthy monetary policy review last week.
The low pace of credit growth is more worrisome because banks’ deposit growth, at a healthy annual rate of 13.4 per cent, has been steady. In a reversal of the trend seen in the past few years, deposit growth has this year outpaced credit growth.
With demand from corporate houses remaining sluggish, lenders are increasingly banking on retail loans, such as housing and auto, to push sales. Demand for retail loans, though lower than last year, remains better that that from companies, say bankers.
“Demand for credit has not been good, despite this being a festival season. We are now beginning to see some improvement but it has so far been tepid for the banking system as a whole,” says A Surendran, general manager & head (retail) at Federal Bank.
Bankers are now pinning their hopes on a revival in credit offtake after Diwali. They, however, contend that it might only be a modest one and a remarkable turnaround could take some time.
