Foreign, state banks losing market share

Import-export trade growth has been slowing down and industrial activity declining in recent months, according to a new research report by Capital Alliance Ltd., an investment bank. This year, CAL expects local private commercial banks’ (LPCB) loan growth to fall to 17%, given subdued economic activity, from 19% in 2012 despite a credit ceiling that year.
Falling vehicle sales after import duties were raised and a debt market made newly attractive by tax breaks might further slow loan growth. New vehicle registrations have plunged with both cars and lorries down by more than half in the January – April period of 2013 compared with the same period in 2012. But lending will pick up slightly next year, the report said. “CAL expects an 18% LPCB loan growth at a compounded annual growth rate in the 2014-16 period as government and foreign banks continue to lose market share.” Local private commercial banks accounted for 42% of commercial banking assets of Rs4.5 trillion and 54% of private sector credit in 2012. Interest rate will fall in the short term this year as the government cuts benchmark rates supported by higher inflows of foreign funds and a strengthened rupees.
Although there was excess liquidity in the banking system, lending rates remained too high to boost loan growth in the first quarter of 2013. A cap on one-year deposit rates of non-banking financial companies might drive deposit rates for lower risk banks downward, reducing cost of funding and help support a continued reduction in average lending rates.