State Bank of India expects a flat growth in its corporate loan book this fiscal due to the uncertainty triggered by the Covid-19 pandemic. The bank had registered a drop in growth in corporate credit portfolio to 2 per cent in FY20 against 14 per cent in FY19.

According to Arijit Basu, MD, Corporate Clients Group & IT, SBI, while the demand has been largely muted during the first two quarters on account of the lockdown, pick-up in demand is expected, particularly in certain sectors, from the third quarter onwards.

“First quarter was a wash out because of the lockdown, Q2 there is opening up, and we expect demand to start picking up in Q3 and Q4 across large sectors of the economy, barring a few such as hospitality, tourism and aviation. The infrastructure sector, for instance, is expected to come back quite fast with the government focusing on it; there is also expected to be a little bit of revival in steel, cement,” Basu told BusinessLine .

Infrastructure

Sectors related to infrastructure such as power will also come back once all business activities go back to normal. Pharmaceutical is another sector that is expected to do well with people becoming more health conscious.

The bank is also giving a lot of focus on MSMEs and expects it to pick up substantially this year.

The growth in the corporate loan book would have been higher but for the large reduction in the non-performing assets (NPA) undertaken by the bank in the segment in both FY19 and FY20 of around ₹60,000 crore each year.

“This is much larger than the normal run rate of ₹5000 to ₹10,000 crore, thereby depressing the actual corporate loan growth. If this extra reduction in NPA, which happened due to large resolutions or recoveries were not there, the corporate loan growth would have been 20 per cent in FY19 and 8 per cent in FY20,” he said.

There is still a lot of uncertainty about how the post-Covid situation would unfold and that has made people a little wary. So, companies will effectively wait and watch till July-August and, once some clarity emerges, they may rework the business model and make projections for FY21. Once they have their growth plans, then they will start drawing funds accordingly, he said.

Asset quality

Talking about asset quality, he said as of Q4-end, State Bank of India has been able to clean up or write off the legacy stressed assets and has made provisions for such accounts. Its provision coverage ratio, which stands at 87 per cent, will ensure that there is no significant challenge to the bank’s books.

The weak accounts in the corporate loan book, which are classified under SMA 1 and SMA 2, has also declined sharply to ₹3,500 crore against a total book of ₹8-lakh crore. Further, only a small portion of its corporate customers have opted for moratorium window extended by the Reserve Bank of India to tide over the current crisis. All these were providing comfort to the bank, he said.

“So our book pre-Covid looked very strong and what we could have expected was without Covid, and given that the Indian economy was in a downturn, things could have come back (sooner). But now with this Covid, things will get a little shifted because companies will find it difficult. Right now everyone is on survival mode and we have to see how much of an impact Covid has had,” he pointed out.

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