Banks expect cut in lending rates to help boost credit growth

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MUMBAI: Bankers are hoping that the sharp cut in lending rates in the New Year will give a fillip to credit growth, which is languishing near a 54-year low. For now though, demand is more likely from individuals to buy homes and vehicles and for personal consumption -corporate investment revival is still not in sight, bankers said.

Banks, led by State Bank of India, reduced their benchmark lending rates by up to 90 bps to the lowest level in a decade on January 1, taking advantage of the sharp rise in deposits after Rs 500 and Rs 1,000 notes were withdrawn from circulation. Bank deposits have risen 13.6% in the current financial year to Rs 105.9 lakh crore, compared with a credit growth of 1.2% in the same period.

SBI chairman Arundhati Bhattacharya said she expects her bank’s credit growth to be boosted after the cut in rates.

“Currently, the credit growth is around 6-7% as against our target of 11-12% for the full year. But we hope that with the measures that are announced today credit growth will improve to 8-9% by the end of the year,“ said Bhattacharya.

The bank announced bridge loans for home loan borrowers who want to buy new homes but were unable to find buyers for their existing homes and loan top-ups for non-salaried customers.

Kotak Mahindra Bank announced an up to 45 bps cut in benchmark lending rates on Monday. Joint managing director Dipak Gupta said expectations that interest rates on deposits below Rs 1 crore will also be reduced have allowed banks to “take the leap of faith“ and cut rates more sharply.

“The retail segment, being more sensitive to rates, is likely to be impacted more by the cuts as lower rates will coax customers to buy and spend more. But it is not come to the stage when companies will be nudged to invest more or start a new factory. That still looks a long way off,“ Gupta said.

So far this financial year, gross bank credit has credit has shrunk 0.8%, led by a decline of 5.5% in cre dit demand from indu stries. Lo ans to indi viduals ha ve grown at 8%, ahead the strongest at 8%, ahead of the 0.7% growth in socalled priority sector loans.

Jairam Sridharan, CFO at Axis Bank, said investment demand has also been hit by the after-effects of the currency withdrawal and other impending changes such as implementation of the Goods and Services Tax and the Real Estate (Regulation and Development) Act.

“Many businesses are in a wait-and-watch mode. One needs to see if these cuts are sufficient to revive demand.Small businesses are in the midst of an adjustment. For corporate demand to revive it will still take a few months,“ Sridharan said.