Thursday, September 17, 2009

Banks buy govt. bonds due to weak loan growth

Since July the demand for bank credit has subdued and till August it has remained flat. Seeing this and left with no other alternative investments banks are purchasing government bonds and in few months there has been increase in the process.

As per the figures released by the Reserve Bank of India (RBI) in August the non-food has grown by only Rs 330 crore, which includes loans to farmers, individuals as well as businesses, but the credit given to the Food Corporation of India (FCL) for grain procurement.

The loans given to FCL are termed as food credit, which accounts for another Rs 220 crore. Thus as on August 28, bank total outstanding accounted to Rs 28,07,582 crore which is an increase of Rs 5,612 crore over the previous fortnight. Although the fortnightly increase is sharp but it has helped in balancing the dip in previous 15 days. On current levels, the annual year-on-year (y-o-y) growth stands at 14.09%, which is much lower than RBI’s comfort level.

However as on August 28 the bank investments in government and other approved securities amounted to Rs 13,69,461.21 crore increased by Rs 23,267 crore over the previous fortnight’s levels and up by 33,860 crore over the July-end levels. Staurt Davis, CEO India, HSBC speaking on the sidelines of a FICCI-IBA seminar, said, “At the moment, loan growth is still relatively modest. Companies are ensuring that their balance sheet is in order. At this stage of the business cycle, normally cash position is harder.”

While Bank of Baroda chairman and managing director, MD Mallya said a pick-up can be expected in the retail loan in the forthcoming festive season. He stated, “Besides, one normally sees a credit pick-up in the busy season beginning October. Another factor is that banks have seen a huge growth in sanctions and one could see these sanctions being availed in the second half. With the signs of industrial revival, there could be an additional demand for credit”.

Mr Davis pointed out that HSBC loan book growth is much dependent on the ratio of recovery in the US, the UK and Europe as it propels the export market worldwide. However some of the banks at individual levels, especially the public sector banks have witnessed their loan book grow include the State Bank of India, Union Bank, Canara Bank and Bank of Baroda, among others. Some of the banks loan book has grown due to increase in demand from the retail sector, and other saw growth in loan book due to strong demand from infrastructure and other core sectors. While for some it was due to combination of both. Therefore the total deposits organized by banks accounted to Rs 40,81,669 crore as on August 28, which is up by Rs 21,616 crore over the previous fortnight’s levels.

Thus the deposit demand was up by Rs 319 crore, and the term deposits grew by Rs 17,897 crore.

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