Demand for credit has picked up in last three months, with a State Bank of India (SBI) in-house survey suggesting plans for capacity expansion across sectors.

Referring to the credit growth visible across sectors, SBI’s economic research report ‘Ecowrap’ noted that sectors where demand for credit started picking up in last three months includes NBFCs, Telecom, Petroleum, Chemical, Electronics, Gems & Jewellery and Infrastructure, including Power and Roads.

These are mostly having big ticket disbursements, it added.

“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,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

In this regard, he observed that sectors such as Healthcare, Commercial Real Estate, Pharmaceuticals, Infrastructure, NBFCs, and Construction will account for a chunk of the credit demand. Credit will be sought mostly by mid-rung entities within these sectors.

Co-lending with NBFCs remains one of the most preferred options of lending for banks in the current scenario as it also helps NBFCs churn their capital and offer on-lending at affordable costs, the report said.

The recent increase in credit is also substantiated by our recent in-house industry survey that is grounded in optimism, Ecowrap noted.

Robust capacity utilisation

The survey suggests capacity utilisation remains robust, with more than two-thirds of respondents suggesting current capacity utilisation of more than 70 per cent while 36 per cent respondents, from diverse sectors such as textile, petrochemicals, building materials etc. indicating better utilisation levels.

The report observed that third quarter (Q3) of FY22 has witnessed a visible expansion in credit growth across sectors.

The incremental Credit-Deposit (CD) ratio beginning Q3 (October-December) FY22 is currently at 133 per cent as against the incremental CD ratio of only 2 per cent during H1 (April-September) FY22, it added.

Incremental deposits in the banking system has declined by ₹2.2 lakh crore in this time period, whereas credit growth has picked up by ₹3.5 lakh crore.

“It may be noted that the deposit growth in banking system has been led by CASA (current account, savings account) deposits far outpacing time deposits with people preferring precautionary motive given the continued uncertainties,” Ghosh said.

As per the report, 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 2021 to 68.1 per cent in September 2021 (excluding Advance Under Collection Account). It emphasised that this will remain a positive enabler for future credit growth.

“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,” Ghosh said.

CP and Bond issuances

The report noted that intriguingly, Commercial Paper (CP) issuances increased by around 40 per cent in the first nine months of FY22 indicating recourse to working capital requirement by corporates.

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,” Ghosh said.

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