The Hindu Business Line : Banks cut back lending to realty, retail sectors

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Banks cut back lending to realty, retail sectors

C. Shivkumar

`Rejig of portfolio will not impact credit expansion'

Bangalore , Dec 5

Taking a cue from the Reserve Bank's peak season credit policy and finance ministry fiats, commercial banks have cut back on credit disbursement to real estate and retail sectors.

But bankers said this cutback essentially amounted to rebalancing of credit portfolios. The Finance Ministry at a review meeting last month told bankers to redirect credit to more productive areas, which included infrastructure, manufacturing and farm sectors. The shift was necessitated by the fact that these sectors currently needed credit-support the most. The cutback, bankers said, had brought down their overall exposure to the real estate and commercial sectors to about 20 per cent. During the second quarter of this year, exposure to these sectors had been about 30 per cent of overall credit.

Yet, despite this reduction, bankers said, credit expansion remained at 28 per cent on year-on-year basis, though below the 31 per cent growth recorded at the end of Q3. Outstanding non-food credit at the end of last month ranged around Rs 16.5 lakh crore, bankers said.

Off-take from SMEs

Bankers said the high growth largely owed to off-take from second-rung manufacturing sector, particularly SMEs (small and medium enterprises) and the farm sector. The larger corporates, however, continued to stay away from banks for term funds, as they could tap the financial markets at competitive rates. Syndicate Bank General Manager Credit, Mr R.K. Abrol said, "The returns are better for lending to non-AAA rated corporates. AAA corporates still insist on low lending rates and steep discounts to the current PLR."

Currently PLR ranges between 10.25 per cent and 10.75 per cent.

The lower-rated corporates, however, were comfortable with lending rates above the PLR. These included corporates raising funds for infrastructure on a non-recourse basis, where the banks would depend entirely on project cash flows for debt service and physical assets in the event of payment delinquencies.

Low risk

Yet bankers said there was little risk of assets turning into substandard or non-performing assets in the near future as some of the advances were tied to export receipts and component supplies to larger domestic and international companies. Besides, with the current pace of GDP growth at 9 per cent, demand was unlikely to be impacted in the near future, they added. Borrowers included large infrastructure companies, and even greenfield power entities. Moreover, the farm sector yielded 9-plus per cent, inclusive of a 2 per cent subsidy.

With this kind of credit off-take, the bankers said, their respective spreads were also protected. Bankers are focussing on a net interest margin of 3 per cent plus for this quarter as well. The rebalancing of credit portfolios partly offsets the impact of softening yields on government securities.

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