Economic Activity Will Return With A Vengeance, Says SBI Chairman
SBI Chairman Dinesh Khara sees a resurgence in demand and forecasts 10% credit growth in FY22.
India’s largest lender State Bank of India is expecting a resurgence in demand and economic activity after June, once the pace of vaccinations picks up.
The bank, which reported an 81% rise in fourth quarter profit, guided towards 10% growth in its loan book in the current financial year.
“If at all vaccination picks up pace, this (resurgence in activity and demand) will be the way of life..... So life will not stop and economic activity is obviously expected to come back with a vengeance,” SBI Chairman Dinesh Khara told BloombergQuint in an interview.
While Khara expects growth to pick up, the bank saw a modest increase in its loan book in the quarter ended March. Advances grew by 5.6% during the quarter over last year, with much of the upside coming from retail loans. The bank’s domestic corporate loan book shrank by 3% year-on-year to Rs 8.19 lakh crore.
The reduction in the corporate loan portfolio was largely due to under-utilisation of credit limits by companies, said Khara.
“If you ask me about a major concern then that is relating to the growth in the corporate book. The quality of course is now excellent for the book, but the growth was not there. It’s not that there is any risk aversion on our part,” Khara said. “We have sanctioned limits which have not been availed.”
Within the corporate loan book, aviation, roads and ports saw growth.
As per the bank’s analyst presentation, loans to aviation firms and airports rose 77% year-on-year to Rs 11,127 crore and those to roads and ports stood at Rs 82,764 crore, up 48% from a year ago. Most of these additional loans were made to either government firms, or projects sponsored by the government.
At present, the bank is seeing low utilisation of approved credit lines.
Some of the bank’s top customers had availed project finance, however, the pandemic delayed execution. Only 70% of the credit limits extended by the bank have been utilised, said Khara. For large companies, the usage is even lower.
“Once the demand resurgence is seen, the borrowers will start utilising these limits,” he said. “Hopefully once we are in a position to ride out the second wave of Covid by June-end, perhaps that will be a point of time where we see resurgence in demand and better utilisation of limits.”
Banks are also facing competition from the bond markets, where a flood of liquidity has lowered rates. To ensure it maintains a large share of its clients’ borrowings, SBI has been pushing up its investments in corporate bonds and commercial paper.
SBI’s investments, other than those toward the statutory liquidity ratio, stood at Rs 2.59 lakh crore as of March 31, as compared with Rs 2.07 lakh crore a year ago.
According to Khara, well-rated borrowers are moving to the debt market for cheaper financing. However, once liquidity normalises, companies will return to banks for funding, he said.
Asset quality, Khara said, isn’t a concern for the bank despite worries surrounding the economy. As of March 31, SBI’s gross non-performing asset ratio improved to 4.98% from 5.44% in December.
The bank’s collection efficiency has remained strong at 96% so far in the April-June quarter.
“We do not see any major asset quality pressure going ahead. We are closely monitoring retail loan asset quality. We are yet to see any major impact of the second wave,” Khara said at a press conference on Friday. “We’re hoping that the impact of the second wave will be behind us at the end of this month.”