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Loan Growth – Who is Borrowing ?

November 20, 2008

This must come as a surprise to most of our readers as India’s loan growth is accelerating; 22% yoy in Jan-08, which has climbed to 28% currently. But, with a slowing economy, where is this growth coming from ?

RBI data suggests that, Large and medium corporates are borrowing most aggressively, consumer and agriculture are lagging industry growth, while small businesses make up the rear, with negative growth YTD. [This is really bad, Small businesses should be given an opportunity to Grow]. Excluding Oil companies, loan growth remains high at 27% yoy.

Loan Growth is a Big Risk:
The fastest-growing sectors – real estate (46%), construction (56%), iron & steel (34%), credit cards (90%) and financial companies (46%) – are also probably the most risky ones. Infrastructure loans also strong (36% yoy), but have moderated in 2Q09 (3% qoq). While rising loan momentum in the face of falling economic growth / Industrial production data sits uneasy, the sectoral bias of this growth suggests even more caution.

Can Indian banks recover the loans lent to Real Estate and Credit Cards ?

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