The Hindu Business Line : Mid-size PSBs match pvt banks in loan growth

Banks such as Allahabad Bank, State Bank of Bikaner & Jaipur, Union Bank of India, Indian Overseas Bank and State Bank of Mysore have reported strong growth ranging between 11.3 per cent and 18 per cent. This almost matched the growth of leading private banks such as HDFC Bank and UTI Bank, which recorded growth of 15.3 per cent and 12.1 per cent, respectively.

The average loan growth of listed public sector banks in the first half over the level at the end of March 2004 was about 8.8 per cent. The rest of the banking sector, which includes private sector banks and unlisted public sector banks, has grown at about 16.7 per cent i.e. nearly double the rate.

What's more, the aggressive loan growth strategy appears set to continue in the second half too.

Mr O.N. Singh, Chairman and Managing Director, Allahabad Bank, indicated as much. He said that for his bank, retail loans, agriculture loans and loans to public sector undertakings were the three growth drivers in the first half of 2004-05.

Mr Cherian Varghese, Chairman and Managing Director, Corporation Bank, said there was improved loan growth in textile, infrastructure, diamonds and pharmaceutical sectors apart from growth in housing and personal loans.

Mr Singh said his bank would increase retail loans despite the Reserve Bank of India increasing the capital requirements for such loans. He did hint however that lending rates may have to be increased going forward.

Will interest rates go up? Mr S.S. Tarapore, Economist and former Deputy Governor, Reserve Bank of India, said, "We have not seen the last of interest rate increases. The market was given a signal, albeit a gentle one, when the repo rate was hiked recently."

A big factor, which may impact the movement of interest rates, is the borrowings by the Government.

It has completed about 30 per cent of its budgeted borrowings so far.

Will the balance of Government borrowing crowd out commercial sector lending in the second half of 2004-05 and lead to a rise in interest rates? Mr Singh did not think so. Neither did Mr Varghese.

He had this to say when asked if a liquidity crunch was emerging.

"Banks have not been availing themselves of refinance facilities such as those available for export refinance, from NHB for housing and Nabard for agriculture. These windows are available. Secondly, the regulators can always allow foreign funds and NRI deposits to flow in, by tweaking up the incentives a little bit. And finally what we give as loans will come back to us as deposits in some other form. So availability of funds is not a problem".

Does that answer the question of whether interest rates will go up? We give you the bankers' regulation answer to that — "Wait and watch!"

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