SBI expects 5-7% corporate credit growth in Q4

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February 29, 2020 3:15 AM

The country's largest lender, State Bank of India, expects corporate credit growth for it during the fourth quarter this fiscal to be around 5-7% y-o-y.

sbi, banking sectorSBI saw a marginal 0.5-1% y-o-y growth in this segment during the third quarter of the current financial year.

The country’s largest lender, State Bank of India, expects corporate credit growth for it during the fourth quarter this fiscal to be around 5-7% y-o-y. The bank is seeing fresh interests in the project finance side in various sectors, particularly in road, city gas distributions and renewable energy, SBI deputy managing director P N Prasad said on Friday.

“Corporate credit offtake generally happens more at the end of the fourth quarter particularly for many reasons. Some of the PSUs, central government and state government indeed do disburse money and consume money in the last quarter. So, normally we expect the credit growth to surge in the months of February and March. At the current trends, it could be around 5-7% for the fourth quarter this fiscal, it cannot be more than that,” Prasad told reporters on the sidelines of an event organised by CII.

Notably, the banking sector has experienced muted credit growth in corporate banking so far, and SBI saw a marginal 0.5-1% y-o-y growth in this segment during the third quarter of the current financial year.

Prasad said currently the lender was seeing fresh interests in various sectors, particularly in roads, city gas distributions and renewable energy, in the project finance side. “There are a lot of interests from renewable side. Our bank has particularly been involved in large renewal proposals and we have been appraising many of the requirement. So, there are fresh shoots coming in that sectors,” he emphasised, adding corporate credit was expected to see good growth in the next fiscal.

Significantly, growth in bank loans to companies and individuals plunged to 6.3% y-o-y in the fortnight to February 14, the lowest pace seen since May 2017. Non-food credit between April 2019 and mid-February 2020 grew at just 2.5%. In a recent report, Crisil, however, said the prolonged slowdown in bank lending may be bottoming out this fiscal, with gross credit offtake set to rise 8-9% y-o-y in fiscal 2020-21, a good 200-300 bps over the likely growth of ~6% this fiscal. “A gradual pick-up in economic activity, continuing demand for retail loans, and strong growth in lending by private sector banks should drive the uptick. Recent policy moves announced in the Union Budget, and by the Reserve Bank of India are also expected to provide spur,” it added.

The deputy managing director of SBI said thermal power, NBFCs and commercial real estate sector were currently facing some stress.

“We are generally facing some kinds of stress in the power sector. There are some thermal power projects which are facing some challenges in terms of their tariffs and delay from payments from discoms (distribution companies). And, we are seeing some stress in some of the NBFCs, and commercial real estate,” Prasad informed. On asset quality in corporate segment, he said fresh slippages came down sequentially.
SBI’s exposure to NBFC sector is currently around `1.70 lakh crore, including investments. Asked whether the bank is cautious on taking fresh exposure to the NBFC sector, Prasad said currently it has ‘some limitations’ as it had already ‘breached’ industry exposure limit.

“We are selectively growing, especially in AA rated and above companies. But in below AA rated companies we are cautious,” he said, adding the lender has a separate window for lower rated firms for priority sector lending. Overall loan requirement for NBFC sector has also come down as the consumption demands have not grown, and the firms are preserving cash and not lending.

According to Prasad, corporate credit growth had been flat as utilisation of working capital by companies had come down as fresh investments were not happening.

“On corporate banking, our current year experience is that the credit growth has been flat. On a year-on-year basis, normally we report around 7-8% credit growth at State Bank of India. But, this year it has been quite flat and the credit growth has been muted. It grew marginally by about 0.5-1% rate. The main reason is that utilisation of working capital or the cash credit by the companies, especially well-rated companies, has come down. So they are not drawing on our cash credit. They are paying back or liquidating our cash credit. While we have substantial sanctions from the project side or by the way of term loans, these term-loans will only get displayed as per their draw down schedules, and it will take its own time because it depends on the execution of the projects. Whereas cash credit is the immediate drawal depending on the working capital requirements,” Prasad explained.

“In fact, what is happening is that companies have been paying back the cash credit. We perceived there could be two reasons — one could be that they are not investing in new projects. That means fresh investments are not happening. Because of that they don’t want to keep their money idle, they are paying back the working capital loans to reduce their costs,” he pointed out.

On whether the bank is concerned about lending to some sectors amid rising fears over the coronavirus spreading quickly around the world, the SBI’s deputy managing director said, “It is too early days to predict. But we are watching the situation because there could be possible impacts on sectors like chemicals and automobile components for which raw materials come from China. There is some concern on gems & jewellery sector. This industry has gone on record saying that the realisation from Hong Kong and China may be prolonged. If the receivables are not payable on time and if it delays due to shutdowns, then there could be some stress. Our credit teams are also aware of this.”

Speaking on resolution mechanism under Insolvency and Bankruptcy Code (IBC), Prasad said prolonged litigation of some of the cases which are under NCLT has been a cause of ‘frustration’ for bankers.
“One of the main aim of the IBC was maximization of value within a given timeline, and banks were very hopeful of resolutions happening in a time-bound manner. There were some initial teething problems under IBC and the litigations increased when Section 29A was introduced. That proved to be frustrating particularly when a new legislation which the industry most wanted could not yield desired result due to litigations,” he pointed out. However, most of these issues were now settled and litigations should come down moving forward, he added.

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