Banks struggle as loan growth continues to stay in single-digit

BORROWING BOOK Personal loans show healthy growth due to festive season; growth has shown an increase of 8.4% in September this year

Single-digit credit growth continues to hit banks, already reeling under rising level of bad loans. Despite early signs of recovery and India improving its rank to 130 in the World Bank’s Ease of Doing Business study for 2015, up 12 notches from last year, credit demand from the industry has remained weak.

According to the latest data, credit growth has shown an increase of 8.4% in September this year over the corresponding period in 2014-15. Credit growth was for the period from August 21, 2015 to September 18, 2015.

However, there is a silver lining. With the setting in of the festive season from October, personal loan segment showed a credit growth of 18% over the same period in the previous financial year. Credit in the housing loan segment also grew 18%.

“Lending has been mostly to the personal loan segment, especially housing, reflecting resilience of consumer demand and the aversion of banks to stressed sectors,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India, said.

Several banks, especially those in the private sector, have in fact decided to focus on the retail loan portfolio. “There has been no problem with the repayment structure in the retail segment and lenders are looking to boost this area,” said a senior executive of a large private sector bank.

With the Reserve Bank of India (RBI) reducing the repo rate – the rate at which banks borrow from the central bank—by 50 basis points in its last monetary policy review, banks have finally started to reduce their base rates and this may finally push appetite for credit even from the industry.

In the current financial year so far — from April to October, non-food credit growth was a mere 1.6% with credit growth to industry declining by 1.1%.

Banks, especially those owned by the government, have had a tough run for the last couple of years with increase in non performing assets (NPA) – loans that do not fetch returns. This, in turn, led banks to adopt a cautious approach while lending.