Credit flows for public sector banks have increased to 29 per cent over the last one year from 20 per cent growth registered in 2007-08, even as the banking industry faced severe liquidity crunch until a couple of months ago. But for private sector banks, it has come down from 24 per cent to 12 per cent during the same period, primarily due to constraints of funds.
The finance ministry and the Reserve Bank of India, which undertook several measures to ease the liquidity situation stressed that the banking industry must increase credit in a bid to keep the growth story on track. With interest rates expected to decline further, credit flows may get another push, analysts said.
When contacted, Axis Bank Vice-president Saugata Bhattacharya said that deposit flows have increased for the state-owned banks enabling them to lend more. “For most part of the year, banks were gripped with liquidity crunch and this made it difficult for private sector banks to lend.”
That apart, as the crisis in the financial sector escalated, most private banks opted to take a conservative approach for lending. “We have been concentrating more on recoveries than fresh lending to thwart off the current problem,” said a senior official of a leading private sector bank. They also witnessed erosion of deposit base, thanks to the crisis.
Private sector banks registered a deposit growth of 13.4 per cent in the first 10 months of the current fiscal as compared to 27 per cent in same period in the previous year.
In the coming months, the trend may not change significantly. With the unfolding of the Satyam fraud case, the banking industry is likely to be more cautious while lending, the official said.
Meanwhile, MD Mallya, chairman and managing director, Bank of Baroda told Hindustan Times that all public sector banks have managed to increase the credit flow while meeting their targets given in their statements of intent to the finance ministry in the beginning of the year. “All the state-owned banks, including ours, have registered healthy credit growth,” he said, adding that the liquidity condition currently is at a comfortable level.
In the last three months, RBI, through several monetary measures, has infused over Rs 3,20,000 crore into the system.