It is four months since the Reserve Bank India began easing interest rates, but India Inc is yet to make an significant new investment. Banks are yet to see any revival of credit demand while companies think that good days are still far away. Many banks, including the country’s top-lender State Bank of India (SBI), have indicated the weakness of credit demand at various levels.
Credit growth (domestic) for SBI in 2014-15 was just 6.80 per cent, about half of its average annual credit growth during the past decade. But the disaggregated numbers reveal a much worse picture. For example, loans given by SBI to mid-size corporates ( with turnover from ₹50 crore to ₹500 crore) fell 0.28 per cent to ₹2.27-lakh crore while loans to small enterprises (SME advances) rose marginally by 0.95 per cent to ₹1.81-lakh crore as on March 31, 2015, compared to the year-ago period. Though large corporate loans have grown a bit for SBI, other public sector banks do not show the same trend.
“Right now, there is no credit pick-up. The little traction which has been noticed recently is due to some demand from retail and MSMEs but not from corporates,” R Athmaram, Executive Director, Bank of Maharashtra, told Business Line. For instance, Punjab National Bank, India’s second largest state-owned lender, saw its commercial real estate loans fall 4 per cent. Many banks are realigning their lending strategies after the bitter experience with infrastructure loans. Andhra Bank, Oriental Bank of Commerce and Central Bank of India, among others, say they will focus more on retail advances this fiscal.
On why banks have not pushed corporate credit, a top banker said, “At a time when most banks have over 5 per cent gross NPAs (non-performing assets), you can’t expect them to burn their fingers more by pushing corporate advances.”
According to R Kalra, Managing Director & CEO (Additional Charge), Andhra Bank, credit demand was weak despite some banks passing on the rate-cut to customers. “I expect things to improve by the last quarter of current fiscal,” he said. Banks claim that with thin net interest margins, further rate cuts on advances (to attract corporate clients) is not possible without first cutting deposit rates.
Corporates say that aggregate demand in the economy is weak. “Banks have passed on only 25 of the 50 basis point cut that the RBI made since the beginning of the year. That will not make the entrepreneur borrow more because the cost of capital doesn’t change much. Interest rate is only a circumstantial motivator,” said A Subba Rao, CFO, RPG group.