SBI suggests plans for capacity expansion

Pick Up In Credit Growth

- Demand from non-PSU credit is set to outpace

- Healthcare, Com-mercial Real Estate, Pharmaceuticals, Infra, NBFCs, and Construction will be the largesse of such credit

- Intriguingly, the Commercial Paper (CP) issuances increased by around 40%

- High cost debt with low cost debt from the bond mkts have been largely completed

Mumbai: The in house survey of the country's largest lender, State Bank of India (SBI) has suggested plans for expansion across sectors in view of buoyant credit growth. The Q3 of current fiscal has witnessed a visible expansion in credit growth across sectors. The incremental CD ratio beginning Q3FY22 is currently at 133 as against the incremental CD ratio of only 2 during H1FY22. Incremental deposits in the banking system has declined by Rs 2.2 lakh crores in this time period, whereas credit growth has picked up by Rs 3.5 lakh crores.

It may be noted that the deposit growth in banking system has been led by CASA deposits far outpacing time deposits with people preferring precautionary motive given the continued uncertainties. The recent credit growth is visible across sectors. Sectors where demand for credit started picking up during last three months includes NBFCs, Telecom, Petroleum, Chemical, Electronics, Gems & Jewellery and Infrastructure including Power and Roads. These are mostly having big ticket disbursements. This, apart our recent understanding of market participants, suggest that demand from non-PSU credit is set to outpace that of PSU credit in Q4FY22. Sectors such as Healthcare, Com-mercial Real Estate, Pharmaceuticals, Infrastructure, NBFCs, and Construction will be the largesse of such credit. These are credit sought mostly by mid-rung entities. Co-lending with NBFCs remains one of the most preferred options of lending in current scenario as it also helps NBFCs churn its capital and offer on-lending at affordable costs.

"The recent increase in credit is also substantiated by our recent in-house industry survey that is grounded in optimism," says SBI group chief economic advisor, Dr Soumya Kanti Ghosh. The survey suggests capacity utilization remains robust, with more than two-thirds of respondents suggesting current capacity utilization of more than 70 per cent, while 36 per cent respondents, from diverse sectors such as Textile, Petrochemicals, Building Materials etc. indicated better utilisation levels.

Intriguingly, the Commercial Paper (CP) issuances increased by around 40 per cent in the first nine month of FY22 indicating recourse to working capital requirement. However, bond primary issuances declined by more than 25 per cent during the same period. This indicates that the reverse credit flow from Banks to Bond market in FY21 is now on the wane as the deleveraging of corporates and substituting of high cost debt with low cost debt from the bond markets seems to have been largely completed. This is also possible as corporates across sectors are now taking recourse to term loans in anticipation of a future growth revival on the back of several government initiatives.

The worry is the recent surge in Omicron infections has pulled down the SBI Business Activity Index to a two-month low. However, the percentage of rural infections to new cases at 18.8 per cent are still at significantly low levels. The share of top 15 districts in new cases is also at 51 per cent.

Most importantly, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) has touched a new peak of 16.6 per cent and their provisioning coverage ratio (PCR) too increased from 67.6 per cent in March to 68.1 per cent in September (excluding AUCA). This will remain a positive enabler for future credit growth.