India’s banks are paring down their business targets for the year fearing a slowdown in credit off-take, their primary source of income, as corporations defer planned investments after suffering twin hits of rising borrowing costs and growing input prices.
State Bank of India (SBI), India’s largest lender, has already lowered its credit growth target for the year to 16-19% from the earlier 19-22%.
Other banks are also expected to bring down their credit growth targets.
“There could be some drop in credit demand as fresh investments are slowing down though the ongoing projects are on track, credit growth would be around 19-20% in this financial year with the GDP growth rate expected to clock around 8%,” MD Mallya, chairman and managing director, Bank of Baroda told Hindustan Times.
Experts said the credit growth could fall short of the Reserve Bank of India’s (RBI’s) 19% projections for 2011-12.
Bank credit growth had grown at around 25% through 2005 to 2007 as the Indian economy expanded at more than 9%.
India’s factory output growth in April rose 6.3 %, less than half from last year’s 13.1%, latest data showed, mirroring signs of an imminent industrial slowdown.
RBI has raised key policy rates 10 times in the past 15 months to bring down demand and lower prices. “There is down turn in the investment cycle, which had driven Indian economic growth since 2003-04,” said Rajiv Kumar, secretary general, Federation of Indian Chambers of Commerce and Industry.
“Private consumption is also beginning to be affected. The slowdown should not be a surprise as it has been policy induced,” he said.