Bankers confident of clocking 20% credit growth
Moneylife Digital Team 12 July 2010

The government has set a growth target of 20% for the banks, both in credit and deposit segments, in the current fiscal. Last fiscal, banks had overshot the 16% target and had ended the year with 16.5% growth

Bankers today informed the Reserve Bank of India (RBI) that they are confident of achieving 20% credit growth this fiscal, on the back of a strong revival in credit demand due to the economic recovery, reports PTI.

"With all the available parameters there, it (credit growth) will be definitely better than last year," State Bank of India (SBI) chairman OP Bhatt told reporters in Mumbai adding a 20% growth looks attainable as of now.

The government has set a growth target of 20% for the banks both in credit and deposit segments in the current fiscal. Last fiscal, banks had overshot the 16% target set by RBI and had ended the year with 16.5% growth.

Mr Bhatt said credit growth has already started picking up and once the demand escalates further, there would be pressure on banks to garner more deposits by hiking deposit rates.

"Once credit demand escalates, there will be a pressure on deposit rates to go up," Mr Bhatt said, adding SBI, however, would wait for policy cues from RBI on 27th July prior to effecting any changes on its interest rates.

Stating that the current liquidity crunch is likely to ease by the end of the month, Mr Bhatt said, "Liquidity is already improving. By the end of July and going forward to August, liquidity is expected to be comfortable."

Mr Bhatt was talking to reporters after the bankers' customary meeting with the apex bank top brass prior to the monetary policy review scheduled later this month. The central bank is widely expected to hike its overnight lending and borrowing rates -repo and reverse repo - by another 0.25% to check double-digit inflation. It had surprised the markets by hiking the repo and reverse repo rates by 25 basis points (bps) late last month.

RBI deputy governor Subir Gokarn met senior bankers, including Canara Bank chairman and managing director AC Mahajan, Axis Bank managing director and chief executive officer Shikha Sharma, Bank of Baroda chairman MD and managing director Mallya and Bank of India chairman and managing director Alok Misra, amongst others.

According to Mr Bhatt, the Reserve Bank is likely to soon announce a sunset clause with a deadline of 30 June, 2011, for all loans in the erstwhile benchmark prime lending rate (BPLR) system to migrate to the new base-rate model.

Banks had approached the RBI for such a clause for all BPLR-linked loans, which, otherwise, would force them to administer two types of benchmarks - base rate and BPLR - for many years in case a borrower refuses to switch to the new benchmark rate.

"Yes, they are going to announce (the decision on sunset clause)...the RBI is currently examining the clause (with a deadline of) one year...that is by 30th June next," Mr Bhatt said.

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