Bank chiefs see tough year ahead; bad debts may go up

http://www.thehindubusinessline.com/2009/04/09/stories/2009040951870100.htm
Credit growth likely to slip to 18% this year’.

Downturn

Large number of accounts are being restructured to cope with recession

Net Interest Margins are likely to fall steeply in the fourth quarter

Our Bureau

Mumbai, April 8 The year ahead is going to be tougher than expected for the banking sector as banks grapple with slowing credit growth, rising delinquencies and declining margins.

This was the message conveyed by bank chiefs in their consultative pre-credit policy meeting with the Reserve Bank of India Governor, Dr D. Subbarao, here on Wednesday.

Talking to reporters immediately after the meeting, Mr T.S. Narayanasami, Chairman and Managing Director, Bank of India, and Chairman, Indian Banks’ Association, said that credit growth will get moderated this financial year.

The credit growth in 2009-10 could at best be 18 per cent as against 27-28 per cent in last fiscal, said Mr M.V. Nair, Chairman, Union Bank of India.

Analysts have also been predicting a lower credit growth in the current fiscal. Broking firm, Angel Broking in a recent report said, “We expect credit growth to go down in FY2010 to 15-17 per cent as fresh investment demand becomes less forthcoming.”

The meeting was called to gauge the outlook for the year and to seek bankers’ feedback.

Bankers said a large number of accounts are being restructured following the RBI advice to help borrowers to cope with the recession. Although this could provide a temporary relief, rising delinquency continues to remain a serious concern.

The NPAs will go up this year as asset quality will be a problem. If there is a further downturn in the economy, it will affect the bank’s asset quality further, Mr Narayanasami said.

Bankers also apprised the RBI that Net Interest Margins (NIM) are likely to fall steeply in the fourth quarter of the just ended fiscal because of the high funding costs. Although deposit rates started coming down in mid-February, they are still high and will continue to ease slowly. However, as the impact of the cut in benchmark prime lending rates is immediate, this has put pressure on NIM. Therefore, further BPLR reduction may not happen for some time, said bankers.

The interest rates and subsidised interest rates cannot come down further, Dr K.C. Chakraborty, Chairman and Managing Director, Punjab National Bank.

Although the RBI has not directly told banks to cut lending rates, there is enough signal from the current repo and reverse repo rates, said Mr Narayanasami.

“It is in the banks’ own interest to bring down lending and deposit rates. They are trying to bring down their cost of funds. More banks will cut their deposit rates in the next fortnight,” he said.

The RBI on its part assured bankers that the Government borrowing programme would be managed smoothly by combining it with Open Market Operations and bond redemptions under the Market Stabilisation Scheme.

Though inflation may turn negative for a brief period, there are no fears of deflation, the Governor assured bankers.