RETAIL CREDIT GROWTH MAY SLOW DOWN IN FY12: CARE

The likely shift in focus to corporate lending vis-à-visretail by some public sector banks coupled with the rising rate scenario could retard retail credit growth to some extent in FY12, according to a CARE Ratings study.

While a slowdown in housing credit growth is not visible as yet, signs of slowdown are clearly visible in the car sales due to rising fuel prices and interest rates, said Ms Ashvini Patil, Senior Analyst, CARE.

For FY12, the credit rating agency has estimated banks' advances growth at 20-21 per cent. The credit growth is expected to be relatively broad-based as compared to FY11, given the gradual broad basing of the industrial growth.

“Infrastructure growth is likely to be sustainable given that the government has envisioned doubling of outlay for this sector in the Twelfth Plan,” said the study.

CARE expects yield on advances to improve by 80-100 basis points with base rates of most banks rising by almost 150 basis points in the past six months A basis point is equal to 0.01 per cent.

In view of the present comfortable liquidity conditions and the likelihood of a rising interest rate scenario given the high inflation rate, the agency has assessed that deposit growth will be 19-20 per cent.

Cost of deposits for FY12 is expected to move up by 75-100 basis points given the rate hikes by scheduled commercial banks since the second half of FY11.

NPA

Taking into account the normal slippages, slippage of 6-8 per cent in restructured assets and full migration to system-driven recognition of NPAs, the gross NPAs of the 26 public sector banks and 11 private sector banks covered by the study will stay range-bound at 2.4-2.6 per cent.

Majority of the banks are unlikely to have any major impact on account of additional NPA provisioning as stipulated by a recent RBI guideline as most of them already have a higher specific NPA provisioning, especially in the doubtful category.

Also, with banks no longer required to achieve the provision coverage ratio of 70 per cent on the incremental NPAs, the savings due to this can be used to increase the specific NPA provisioning, noted the study.

“Only a few banks which had provision coverage of less than 70 per cent as on September 30, 2010, may see some impact on their profits as a result of the recent change in provisioning norms by the RBI,” said the CARE study.

NIM

While banks are expected to pass on any hike in cost of funds to borrowers to maintain their spreads, the agency cautioned that net interest margins (NIMs) may come under pressure in the event of lower than expected credit off-take during the year.

Given the hardening interest rate scenario, the scope for significant, across-the-board treasury gains could be limited in the medium term.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article2063091.ece