Credit growth, which has been moderating over the last two years, will start picking up next year, said Ms Shikha Sharma, Managing Director and Chief Executive Officer, Axis Bank.

“Credit growth is directly linked to what is happening in the economy. Our belief is in the long term growth of the economy so we expect credit to pick up,” Ms Sharma told newspersons on the sidelines of a CII leadership summit here on Friday.

The slowdown in credit offtake was primarily on account of a dip in demand from large corporates. “The industry was on a tightening mode, they were looking at leveraging their existing investments rather than pumping in fresh investments,” she said.

Growth in credit would be fuelled by a moderation in interest rates on the back of easing inflation. The annual wholesale price index-based inflation rate in October rose 9.73 per cent compared to 9.72 per cent in September.

“As interest rates begin to moderate, which should happen next year, on account of a moderation in inflation, we should see credit picking up,” Ms Sharma said.

Ms Sharma, however, said it would be difficult to predict the exact time when this (interest rate softening) would happen.

Talking about asset quality, Ms Sharma said that asset quality will follow the economic cycle. “Non-performing assets will follow the economic cycle. If the economy slows down then there could be a rise in NPAs. However, banks have become very cautious and are looking at diversifying risks,” she said.

Replying to a query on the possibility of restructuring of accounts, she said, “In the present economic scenario it is inevitable that companies will have a cash flow mismatch. Banks should take a call on which companies are fundamentally strong and are just facing a temporary cash flow mismatch before considering the possibility of restructuring.” There was some stress in the mining and textiles sectors, she added.

(This article was published on December 9, 2011)
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