NEWS & ADVICE : FIXED DEPOSITS
Banks lower loan growth targets
By Neelima Shankar
Nov 4, 2009
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Several leading public as well as private sector banks are cutting down their loan growth targets for the fiscal ending March 2010. The country's largest lender, State Bank of India is not amongst these banks and says that it will outpace the industry average in terms of credit growth.

State-owned banks like Bank of Baroda, Bank of India and Union bank of India have lowered the loan growth targets fearing that the corporate might not borrow as much as projected in the beginning of the year. However, SBI is lending aggressively to large firms especially public sector oil companies.

SBI is hopeful that it will be able to meet its target of 22 % in loan growth, despite RBI's lowering the credit growth forecast for the industry from 18-20 percent. SBI chairman and managing director OP Bhatt said, "We are seeing good demand for loans and going by the second quarter's performance, we are optimistic that coming quarters will be even better. SBI is benefiting from a reduction in its cost of deposits - which was just over 6% at the end of September after it reduced rates on term deposits and grew low-cost current and savings accounts - and its ability to lend to big borrowers at rates which cannot be matched by rival banks.

SBI also expects its net interest margin (NIM) to better by 15-20 bps. Net interest margin is the difference between the cost of funds and gains from loans. SBI's NIM stood at 2.43% at the quarter ending September.

Union Bank of India reduced its loan growth target from 25% to 18-19%. Considering private banks, Axis, the country's third largest bank has also lowered the credit growth target to less than 20 % from the initial 25% and ICICI is trying to maintain its loan book size.

The reason for banks lowering their credit growth targets is decrease in corporate borrowings through bank loans and non-bank sources like commercial paper, bonds in the April-September period.

Bank loans to farmers, corporate and individuals have fallen by 67% in the first half of current fiscal year to Rs 1,07,861 from Rs 1,80,999 crore. During the same period, borrowing from non-banking sources fell by only Rs 10,318 crore to Rs 2,30,130 crore.

The pace of loan growth slowed from 29 % to 10.8% in the six month period ending September. This was mainly because of the collapse of Lehman Brothers. The decrease in pace is also because the country's second largest bank is consolidating its loan book which has reduced by Rs. 27,451 crore.


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