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RBI raises red flag over high credit growth of few banks

At a time when bank credit growth of the entire sector was less than 14 per cent in 2013-14, some public sector lenders recorded significantly higher growth than the industry that has prompted the banking regulator to caution these lenders.

According to Reserve Bank of India data, credit growth for the banking sector was 14.8 per cent while a host of banks including Bank of India, Canara Bank and Bank of Baroda (BOB) reported more than 20 per cent growth while lenders like UCO Bank, and Indian Bank reported over 16 per cent growth in the previous financial year.

The banking regulator has pointed out the sharp credit pick up during the annual financial inspection of banks. According to central banking sources, a few banks have been found to have extended credit to their existing borrower to repay their debt, which is known as ever greening of loans in banking parlance.

In addition, it was found that sectors that are facing maximum stress, like infrastructure, banks have a high exposure to these sectors.

Canara Bank, for example, recorded loan growth 19 per cent to infrastructure sector and within the infrastructure sector, the power sector saw a loan growth of 19 per cent. Loans to infrastructure sector consists 50.8 per cent of the total debt restructuring of the bank in which power sector contribution is 37.3 per cent. So far as slippages are concerned, large industries contributed 43 per cent of the total slippages in the fourth quarter which was Rs 920 crore out of total slippages of Rs 2,134 crore.

Similarly, Bank of India (BoI) which reported 26.46 per cent loan growth to the infrastructure sector, also recorded 2.61 per cent gross NPA from the same sector. The lender’s overall gross NPA ratio of the lender was 3.15 per cent as on March 31.

Some of the banks with significant international presence, like BoI and BoB, the rupee’s weakening against the dollar in the previous financial year have also contributed to higher growth of the balance sheet then it would have been otherwise.

On Saturday, RBI Deputy Governor R Gandhi expressed concern over bad loans and said banks should strengthen their internal credit appraisal systems to minimise the risk of default.

“The final (NPA) figure for March 2014 is yet to be known; while some may view this ratio as reasonable, given the economic conditions prevalent in the country and elsewhere, the total stressed assets in the banking system (including restructured standard assets) as at December 2013 was 10.13 per cent of the gross advances of the banks, which is a cause of concern for the Reserve Bank,” Gandhi said. He, however, expects figures for fourth quarter of the previous financial year to be better than the third quarter.

Earlier, in 2012-13, Bank of Maharashtra reported over 35 per cent credit growth when the overall credit growth in the system was about 15 per cent. The bank asset quality worsen subsequently and profitability came under pressure in the following year. RBI had asked the bank to adopt a cautious policy while lending.


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