The Hindu Business Line : ‘Banks to see moderate credit growth’

Mumbai, Aug. 1 The banking industry will see a moderate growth in credit this fiscal, following the hike in interest rates by the Reserve Bank of India, said Mr T.S. Narayanasami, Chairman and Managing Director, Bank of India, and Chairman, Indian Banks’ Association, reflecting the common sentiment among bankers.

Speaking to reporters on the sidelines of a banking seminar here on Friday, Mr Narayanasami said that further monetary tightening by the RBI is possible if inflation figures do not subside.

The RBI’s move, aimed at restricting the excess money supply in the system, will lead to an increase in cost of funds for banks. This will, in turn, lead to a hike in lending rates by banks, and consequently, a slowdown in credit demand.

The RBI in its monetary policy had said that growth in non-food credit in this fiscal would be in the range of 20 per cent with moderation in industrial and service sectors.

Regarding an increase in lending and deposit rates, Mr Narayanasami said the bank’s Asset Liability Committee is expected to meet within 10 days and take a decision.

He stressed on the importance of concentrating on the fee-based component of other income, considering the pressures on net interest margin. He expects the asset quality of banks to deteriorate with increased pressure on retail loans and a rise in the number of delinquencies.

Standard Chartered bank, which had raised its lending rates by 125 basis points on July 25, may also review the rates once again, said Mr Neeraj Swaroop, CEO-India.

Lending forms only a small proportion of the bank’s activities and the pressure on margins could be managed, Mr Swaroop added.