Banks’ credit growth is likely to remain lower than the Reserve Bank of India’s indicative projection of 17 per cent, according to credit rating agency ICRA.
This is due to the substantial borrowing programme of the Government and the muted deposit growth anticipated in FY13.
Moreover, the lower credit growth projection is despite the expectation that banks will lower their base lending rates in the October 2012 to March 2013 period to improve credit growth and also partly pass on the likely benefit of monetary actions by the Reserve Bank of India.
The rating agency observed that lending rates remain high with only three domestic banks reducing their base lending rates by 10-25 basis points in the July-September 2012 period. Some banks have reduced lending rates for specific assets.
According to RBI data, year-on-year, bank credit grew at a slower clip of 15.9 per cent as on October 5, 2012, against 19.5 per cent in the year ago period.
The central bank’s sectoral deployment of credit data shows that (year-on-year as on August 24, 2012) demand in the industry (micro and small, medium and large), services, and personal loan segments slowed while that to agriculture increased.
Deposits growth
ICRA expects a 13.5-15.0 per cent growth in bank deposits in FY13. The recent instruction to public sector banks from the Finance Ministry on restricting their bulk deposits will further put pressure on deposit mobilisation during the current fiscal, it added.
Year-on-year, bank deposits growth slowed to 13.9 per cent as on October 5, 2012, against 17.5 per cent in the year ago period.
In light of the sticky headline and core inflation, the RBI is unlikely to alter the policy rate in its second quarter review of Monetary Policy on October 30, 2012, said ICRA.
However, in the light of the seasonal pick-up in credit demand, the Central Bank may consider a further reduction in the cash reserve ratio (CRR) by 25-50 basis points to support economic activity.
The agency said that with headline inflation expected to average 7.5-7.7 per cent in the current fiscal, the space available for further monetary easing is likely to be limited to around 50 basis points over the remainder of 2012-13.