Indian economy reviving, but demand for loans remain weak
The Indian economy has been showing signs of recovery, but demand for loans, both corporate and retail, remains week, and growth is actually slower than the previous year. Credit growth in the current financial year has been in single digits at around 9.5%, against over 13% last year.
Sources said companies are still showing no increase in appetite for loans and the situation is unlikely to change in the next few months.
In 2014-15, the overall credit growth registered by public sector banks was 7.6%, significantly lower than 14.30% in the previous financial year. Interestingly, though, private sector banks saw loan disbursal grow at 18.7%.
“While demand for credit is more from the retail segments, corporate India is still unwilling,” said Soumya Kanti Ghosh, chief economic adviser, State Bank of India, adding that fresh credit demand from stalled projects that have been cleared and the new ones that have got approvals would start only from the third quarter.
Indian Overseas Bank and UCO Bank have witnessed a decline in loan growth.
“Typically around this time of the year, credit demand is relatively lower, though overall appetite is also mute, but we expect the situation to improve from October not just from companies but retail lending is also set to surge with the beginning of the festive season,” said a senior official at a public sector bank.
The sluggish growth in loan disbursement may well impact banks’ chances of raising capital from the government.
The finance ministry has asked banks to focus on increasing credit growth and to chalk out plans to enhance businesses and raising capital. Those that fail to show healthy business growth are set to find it tough to be eligible for the government’s recapitalisation exercise, which is required not only to expand businesses further but also to partly meet the stringent Basel III norms.