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| Weak rupee saves the day for banks with foreign presence | | Loan growth of ICICI Bank, BoB, BoI aided by rupee depreciation |
| Somasroy Chakraborty & Abhijit Lele / Mumbai Feb 06, 2012, 00:31 IST |
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 The sharp decline in the rupee in the second half of 2011 has aided domestic banks with large foreign presence to report strong growth in credit portfolio, even as the demand for loans has been dwindling locally, due to high interest rates and an uncertain macro-economic environment.
This is because when the rupee was at 45, every dollar lent by a bank would have added Rs 45 to its loan book. But as the rupee depreciated to 54, every dollar lent resulted in addition of Rs 54 to its credit portfolio and reflected higher growth in advances.
ICICI Bank, the largest private sector lender in the country, saw total advances expanding 19 per cent from a year ago to Rs 246,157 crore as of December-end. The industry credit growth during this period was 16 per cent, the lowest so far this financial year.
ICICI Bank's loan growth was primarily driven by a 38 per cent year-on-year rise in net advances of its branches abroad. Growth in domestic corporate advances also aided credit expansion.
"The depreciation of the rupee had a positive impact on the growth of the net advances of our overseas branches. Excluding this, the year-on-year growth in the overseas advances would have been about 16.5 per cent," a senior executive of the bank said, after the lender reported its third quarter earnings last week.
The international portfolio in the bank's foreign branches grew 4.4 per cent sequentially during the October-December quarter. In the domestic market, however, slowdown in new loan sanctions continued and decline in unsecured retail loans impacted the year-on-year growth in consumer credit.
The rupee depreciated by nearly 19 per cent against the greenback in the second half of 2011 and touched an all-time low of Rs 54.35 against the dollar in the last week of November. The Reserve Bank of India had announced a slew of measures since then, that helped the local currency rebound and gain around 12 per cent from its all-time low level.
Bank of Baroda, which gets about a fifth of its profits and businesses from foreign operations, has also benefited from the rupee depreciation. The bank has presence in more than 20 countries across the globe. Its foreign loan book grew 45.8 per cent, primarily because of the fall in the Indian currency.
If the impact of currency rate fluctuations is adjusted, then the growth in its overseas advances will be only 25 per cent.
According to R K Bakshi, executive director of Bank of Baroda, it will be tough for banks to show high credit growth in rupee terms in the current quarter, as the local currency has been appreciating against the dollar since January, 2012.
For Bank of India, the year-on-year growth in foreign loan portfolio was nearly 67 per cent as of December-end. The bank's domestic credit growth during this period was only eight per cent.
The state-run lender's chairman and managing director, Alok Misra, attributed the growth in loans abroad to depreciation of the rupee. He clarified that the bank was not aggressively expanding its foreign loan portfolio, as the macro-economic environment globally continues to remain weak.
The declining rupee also aided the bank's earnings. While Bank of India's profit from domestic operations declined in the third quarter to Rs 521 crore from Rs 523 crore a year ago, its gains from operations abroad surged 50 per cent in the same period.
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