Tuesday September 1, 04:10 PM

Union Bank sees FY10 loan growth at 22-23 pct

MUMBAI (Reuters) - State-run lender Union Bank of India (UNIONBANK.NS : 270.3 -0.85) expects loans to grow 22-23 percent in 2009/10, compared with the earlier projection of 25 percent, its top official said on Tuesday.

"With the industrial output numbers and the GDP picking up in the first quarter, we expect credit to pick up but it will definitely be a little lower than our target," M.V. Nair, chairman and managing director, said.

Indian bank loans were rising at an annual rate of 15 percent on lower demand owing to the economic downturn although the Reserve Bank has projected a loan growth of 20 percent in FY10.

India's economy grew 6.1 percent in June quarter and industrial output rose 7.8 percent in June from a year earlier as government stimulus measures helped spur demand.

"This gives us confidence that projects that were held up will start off in the near future, helping growth in credit offtake," he said.

The bank is looking at a net interest margin of 2.3 percent in the July-Sept quarter, same as in April-June, Nair, also the Indian Banks Association chief, told reporters.

The bank's net interest margin fell from 3.3 percent levels in FY09 as prime lending rates were cut to spur loan demand but deposit mobilsation rates were lowered at a later date, he said.

The bank's current prime lending rate is 11.75 percent.

Sanctions from public sector banks were up 50 percent from October 2008 till May 2009, but the offtake was low because of lack of investments by industries, he said, citing a study by the Indian Banks Association.

The study also showed banks have restructured 4 percent of their loan books after Reserve Bank of India allowed resetting of loan terms to help industries tide over the economic downturn, Nair said.

"This will help us lower possibility of loans becoming bad during the slowdown," he added.

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