No cheer for banks this festive season

NEW DELHI: This festive season could be lacklustre for the banking sector, which is saddled with a double whammy of huge nonperforming assets (NPA) and slow credit growth.

Lenders say appetite for credit in the current financial year has been low and the trend is likely to continue for some time, even as banks gear up to make loans available at cheaper rates ahead of the festivities. With a pile of NPA or default loans, banks are not in a position to go in for large lendings. The gross NPA level stood at 9.4% — over ₹8 lakh crore — in March 2017.

This could cause worry for the Narendra Modi-led National Democratic Alliance (NDA) government, especially after the Economic Survey indicated that it will be difficult to touch the upper end of projected growth rate of 6.75% to 7.5% for the current year.

The credit growth too decelerated by ₹1,119 billion in the current fiscal — between April and August first week— a State Bank of India report showed.

Total outstanding credit in March 2017 stood at ₹78,415 billion but in August, it was lower at ₹77,296 billion. “This means that about ₹1.1 lakh crore has been reduced from the total credit basket and this could be because of repayment, but this also shows that there has been limited incremental credit,” said Soumya Kanti Ghosh, chief economic adviser of the SBI.

The credit growth, an indicator of the economy and its health, grew by a meagre 4.5% in 2016-17, the lowest in 50 years. “While there is less demand for credit, banks too are saddled with a high NPA level and thus are reluctant to lend freely,” DK Joshi, chief economist, Crisil, said.

Until last year, the demand for retail loans, including personal and home loans, was relatively high and this pushed the overall credit portfolio. However, after demonetisation, the pace of growth in retail loan segment has been slowing down.

“Credit demand from industry has been almost wiped out. Retail loans have been growing but it is not as brisk as it used to be even a year or two ago,” Joshi added.

A senior public sector bank official said lenders were being “extremely cautious” while lending with default rate rising to an alarming level.

“For example, most government banks are reluctant to give loans to students who wish to go abroad fearing non repayment,” the official said.

CREDIT GROWTH, AN INDICATOR OF THE ECONOMY AND ITS HEALTH, GREW BY JUST 4.5% IN 201617, THE LOWEST IN 50 YEARS