Banks see credit demand revival

Enthused by signs of a strong economic recovery, banks said on Monday they expect a credit growth of 20-22 per cent in FY 11 and would wait for further policy cues prior to taking a call on hiking their lending rates.

Bankers, who met the Reserve Bank of India Governor D Subbarao on Monday, two weeks before the annual monetary policy scheduled for April 20, said none of them was presently contemplating hike in lending rates given the 'reasonable' liquidity in the system.

"The general expectation is that the 8.5 per cent gross domestic product growth in (FY11) will happen. Credit and deposit growth are expected at 20-22 per cent," Union Bank of India's chairman and managing director and Indian Banks' Association chairman, M V Nair, told reporters in Mumbai.

Bankers, however, expressed their concern on the runaway inflation, close to double-digits now, and expect that the Reserve Bank of India to step in with its monetary policy tools to stem the inflationary pressures.

"Inflation is a matter of concern. Numbers are higher than what the RBI has projected. The general consensus is that there will be reasonable liquidity to support credit growth. ..monetary action may have to be on containing inflation," Nair said.

However, if the Reserve Bank hiked its cash reserve ratio (banks' mandatory deposits with the RBI) further in the annual policy, then lending rates could rise, he said. "In case the CRR goes up, there is a cost involved in that," Nair said.

The apex bank, which started exiting its easy money stance in January by effecting a 0.75 per cent hike in CRR to 5.75 per cent, is widely expected to tighten its policy further on April 20.

Bankers present at the meeting included SBI chairman O P Bhatt, ICICI Bank MD and CEO Chanda Kochhar, HDFC Bank managing director Aditya Puri, Bank of Baroda CMD M D Mallya and Canara Bank CMD A C Mahajan, among others.

During the meeting, some of the bankers also expressed concerns of a possible rise in bad loans in the industry, particularly from restructured assets.

However, if the economic recovery sustains, then NPAs are likely to stay under manageable levels, they said.

"There may be some additional delinquencies from the restructured assets that may come up. But some (bankers) said because of the better GDP growth, the possibility of non-performing assets may be less," Nair said.

Bankers also see some pressure on their margins on account of the daily calculation of interest on savings bank deposits, which came into effect from the beginning of this month.

Private sector Federal Bank's managing director and CEO, M Venugopalan, said credit growth in the industry, which has started to pick up, would improve further by the second quarter of this fiscal.

Also, slippages (bad loans) in the banking industry is likely to be lower this fiscal as compared to last year as the overall scenario is improving, Venugopalan said.