PSU banks’ credit growth target may be slashed
THE finance ministry may scale down credit growth targets for public sector banks to around 20%, if RBI's projections on credit demand in its monetary policy review (at the end of the month) indicate such a change in trend. The central bank had anticipated credit growth between 24-25% in 2007-08. “Some banks have written for a downward revision of the credit growth targets. We can only revise them, depending on what RBI anticipates the credit demand to be for the remaining part of the fiscal, to be in sync with the central bank,” a financial ministry official, who did not wish to be named, said. According to RBI data, banks have witnessed a substantial slowdown in credit demand in the financial year so far. As on October 12, bank credit stood at Rs 96,486 crore, a growth of 5% over the previous year against Rs 1,54,414 crore in 2006 with a growth in 10.2% over the previous year. Every financial year, the government spells out a target for public sector banks on 16 parameters, referred as statement of intent (SoI). Bankers are expected to flag the issue at their quarterly meeting with finance minister P Chidambaram next month. Punjab National Bank has written to the government to revise its credit growth target downwards to 17% from 24% year-on-year. "Wholesale credit has not picked. Retail credit is not an issue, because typically borrowers would wait for a rate cut," a PNB official said. Banks have started to cut both deposits and lending rates in a bid to stimulate demand during the festival season which will last for 10 weeks till the end of the calendar year. In the last six months of the current fiscal, PNB has witnessed 7-8% rise in advances compared to 8.5% during the same period last year, he said. By the end of the fiscal year, the bank hopes to achieve 20% deposit growth and 18-19% increase in advances during the fiscal. Most banks have surplus and are resorting to parking investments in government securities, in the absence of credit offtake. “There is surplus cash, and not enough demand, so g-secs is one of the few options available,” a treasury official said. The index of industrial production (IIP) registered a growth of 7.2% in July this year compared with 13.2% a year ago, signalling a nine-month low in the index. The manufacturing sector growth slowed down to 7.2% in July compared with a growth of 9.8 % in June and 11.7 % in May this year.