Banks are better placed to sustain the current levels of credit growth in this cycle as they are well equipped to make accurate decisions compared to the previous cycle, State Bank of India chairman Dinesh Khara said on Wednesday. With infrastructure in terms of insolvency code and the GST network in place, banks have necessary tools to evaluate risk patterns, he said, adding that the corporate is considerably de-leveraged in the current growth cycle compared to the previous one.
“So, I think, all this put together …the banking system is much better placed and the growth is sustainable too,” Khara said at the 9th SBI Banking & Economics Conclave. The lender has a project pipeline of Rs 2.5 trillion, he said.
Lenders now look at the colour of the equity to ensure that hybrid debt does not masquerade as core equity, SBI chairman said.
The banking sector credit growth improved by close to 18% for the fortnight ended November 4. Although this growth was fuelled by personal loans, credit to industry has also picked up. Loans to industry increased by 12% in September, as per the Reserve Bank of India (RBI) data. Companies are coming through with infrastructure and capacity creation, Khara said, adding that capacity utilisation is currently above 75%, signalling higher investments.
Although, infrastructure financing is led by bond issuances, the credit support to the sector comes from banks as the bond market is underdeveloped, Khara said. The banking system and the alternative mechanisms like the GIFT City will play a significant role to cater to financing requirement, he said. “The kind of infrastructure growth seen today was not seen in the past, which will require huge mobilisation of financial resources.
Khara also said the bank has not yet started to unwind its excess liquidity to support the credit growth. SBI, which has excess SLR to the tune of Rs 3.5 trillion, was planning to deploy the funds for lending, Khara had said earlier. On the credit-deposit (CD) ratio, Khara said a high ratio is a challenge for banks as they will have to raise funds at high cost, curtailing their ability to lend at competitive rates. Typically, the CD ratio should be around 75%, Khara said. SBI’s current CD ratio is 65%.