India’s banks say they expect credit growth to pick up moderately this financial year after falling to an almost two-decade low, as consumer confidence grows and companies resume borrowing to keep plants running and fund new projects.
Bank credit is a key source of funding for companies in Asia’s third-largest economy and is often seen as a barometer of economic activity.
Alarm bells rang when loan growth slowed to 12.6 per cent in the financial year to March, making it the weakest pace since 1997. Banks, laden with bad debts, were reining in loans, and firms were warier.
For the financial year ending March 2016, India’s top bankers expect growth of about 14 per cent, closer to the rate of 13.9 per cent seen in the financial year ended March 2014, but less than half the heady pace seen about a decade earlier.
“Overall it’s looking better,” said Arundhati Bhattacharya, chairman of top lender State Bank of India, which accounts for about a quarter of the nation’s banking business.
“New projects are still few and far between. But having said that, I think you know it’s getting closer. The trajectory, if you ask me, is upward, definitely,” she said.
India’s recovery may still be stuttering – the government last week lowered its full year growth forecast.
However, India remains the world’s fastest growing major economy, and government support for stalled infrastructure projects is beginning to trickle down, bankers say.
SBI says it aims to beat last year’s 10.5 per cent credit growth, increasing loans by 14 per cent this year.
Aditya Puri, the veteran managing director of HDFC Bank, India’s largest bank by market capitalisation, has estimated loan growth in India’s banking sector at 12 to 14 per cent.
“This is more working capital demand. Of course there is a slight increase in capex also,” R.K. Gupta, executive director of mid-sized lender Bank of Maharashtra said.
Highly-rated companies are also raising funds through commercial paper and bonds, where they have to pay lower rates.