12 Jan 2022 , 10:15 AM
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 Q4 FY22.
Sectors such as Healthcare, Commercial 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. The survey suggests capacity utilization remains robust, with more than two-thirds of respondents suggesting current capacity utilisation of more than 70% while 36% 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% in the first nine month of FY22 indicating recourse to working capital requirement. However, bond primary issuances declined by more than 25% 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% are still at significantly low levels. The share of top 15 districts in new cases is also at 51%.
Most importantly, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) has touched a new peak of 16.6 % and their provisioning coverage ratio (PCR) too increased from 67.6% in March 2021 to 68.1% in September 2021 (excluding AUCA). This will remain a positive enabler for future credit growth.
The author of this article is Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com
Related Tags
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
IIFL Capital Services Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
ARN NO : 47791 (AMFI Registered Mutual Fund Distributor)
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.