Despite inflationary pressures and rate hikes, corporate credit offtake has seen significant growth in the second quarter of the current fiscal for several banks. The increase in the credit offtake was in double-digits for major banks, going up to 27 per cent in some cases. Domestic advances growth was driven by a 21.2 per cent surge in corporate advances for State Bank of India (SBI).
“The performance in some sectors of the economy has surpassed pre-pandemic levels, leading to higher credit appetite and better confidence to land among banks, said a senior SBI official.
Sandeep Bakhshi, Managing Director and CEO of ICICI Bank, said domestic corporate portfolio grew 23.1 year-on-year and 6.8 per cent sequentially for the bank in the second quarter, driven by growth across well-rated financial and non-financial corporates.
The numbers of other banks show a similar trend. For HDFC Bank, Canara Bank, Punjab National Bank, Indian Overseas Bank, Bank of Baroda and Indian Bank saw corporate advance growing in double-digits, except for Indian Bank.
Infrastructure, energy, chemicals and chemical products, iron and steel are among the sectors that are witnessing higher credit demand and disbursals by banks.
According to Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, credit to industry has picked up due to three factors — demand from infra-oriented sectors, rise in working capital demand in a high inflation scenario, and bond market substitution due to higher interest rates in the latter.
“For a number of companies, rise in input prices has meant higher utilisation of working capital limits. The pick-up in economic activity after the pandemic has also contributed to credit growth rising, which has been in addition supported by base effect of H1-FY22 when credit growth was subdued,’‘ he said.
To support higher credit growth, banks need to ensure that deposit growth also picks up, say analysts. Deposit growth has not picked up in the last few months as banks haven’t increased the deposit rates too much. Increase in deposit rates so far have been well below the repo rate hikes. In the last two quarters, the repo rate has gone up by 190 bps, but the deposit rate increase has been much lower than that.