Banks To Meet RBI’s Growth Target In FY13

Indian banks are facing serious challenges in terms of growth. On one hand, the Consumer Price Index (CPI) inflation, which has an ear to the ground, still remains on the higher side, resulting in lesser savings and impacting the deposit growth of banks. On the other, in the background of the overall slowdown, the loan growth has also seen some moderation. The general market consensus was that the most of the Scheduled Commercial Banks (SCBs) may miss the RBI's estimated deposit and advances (loan) growth rate of 13% and 16% respectively for FY13.

However, the latest fortnightly report released by the RBI says that the banks’ business growth is in line with its estimates. The aggregate deposits as on February 22, 2013 stand at Rs 65610 crore against Rs 58199 as on February 24, 2012, growing at 12.73%. Also, the non-food credit (loan) growth stands at Rs 51260 crore as on February 22, 2013, up by 16.26% in the last one year. With merely a month left in the fiscal year, will banks maintain the same growth rates to achieve the overall growth target for the fiscal set by the RBI, or would they miss the same?

Most of the private sector banks are currently growing well above the apex bank’s projection for this fiscal. A whole lot of pressure is on Public Sector Banks (PSBs), which are facing headwinds. PSB heavyweight State Bank of India (SBI) may see at par deposit growth, and 100-200 bps higher loan growth of around 17%-18%.

Another point to note is that banks have to stick to the priority sector’s norms (40% of the total advances). Banks tend to fall short on this requirement till the December quarter and normally, lending to this sector is expedited in the March quarter. Hence, there is usually good growth in the March quarter, taking the overall loan growth higher.

In the past one month, many of the banks have also raised their deposit rates in the range of 25-150 bps across various time horizons. This could result into slightly higher savings by individuals. This move by the banks is contrary to the RBI’s anticipation, which has slashed the repo rate by 25 basis points to 7.75% in January 2013 and had also expected that banks should pass on these. However, one should note that this is due to asset-liability mismatch, which has prompted banks to increase the deposit rates.

According to recent media reports, loan growth may be slower due to subdued consumer demand. Further, the report also stated that the budget, which included the benefit of additional deduction of Rs 1 lakh of interest for buying first home, may result in buyers postponing buying activity at least in the month of March 2013. Though this would result in slower growth in the month of March, we would see a spurt in demand and good growth in the next fiscal.

Overall, we believe that SCBs would be able to achieve the estimated growth target for FY2013. We continue to remain bullish on the private sector banking space as better asset quality, stable or rising Net Interest Margin (NIM) coupled with good business growth will help the banks to be in a healthy situation.