ICICI sees minor impact from RBI steps

MUMBAI (Reuters) - The head of ICICI Bank, India's no. 2 lender, said steps on Tuesday by the Reserve Bank to start withdrawing liquidity and impose higher provisions for some loans would not have a large impact on the banking system.

In a quarterly policy review, the Reserve Bank of India increased provisioning for commercial real estate loans to 1 percent from 0.4 percent, and gave banks 11 months to raise provisions for non-performing assets to at least 70 percent.

The Reserve Bank also raised the statutory liquidity ratio by 1 percent, reversing a cut made last November, although banks already hold government securities in excess of the requirement.

The RBI, which left key interest rates unchanged at the review, said there were signs of excess liquidity feeding into asset prices.

"There is no issue of asset bubble. It is only the return of some measures which had been relaxed," ICICI Bank managing director Chanda Kochhar told reporters.

"For banks as a whole, exposure to commercial real estate is very small... as such it does not impact banks much," she said, adding funding to sector came mainly from non-banks.

The head of State Bank of India, the country's top lender, said he expected credit growth to pick up as the economy improved.

"Credit demand will definitely pick up from now with demand from industries," chairman O.P. Bhatt said.

Banks' loan growth has slowed to an annual 13 percent from 25 percent last year as the global financial crisis hurt. Analysts expects a revival in the second half of the 2009/10 year as business confidence has risen.