Public sector banks up loan growth target as corporate demand sees revival

Large public sector banks (PSBs) have revised upwards their credit growth target for the current financial year. This is following revival of demand from the corporate sector and small and medium enterprises (SMEs), even as a nascent economic recovery is taking shape.

Credit growth of scheduled commercial banks had accelerated to 9.2 per cent year-on-year (YoY) by the end of December 2021 after breaching the 7 per cent-mark in November, for the first time since April 2020. 

However, loan growth contracted during the first fortnight of January 2022. This resulted in the growth figure falling to 8 per cent.

State Bank of India — the country’s largest lender — which reported 8.5 per cent loan growth at the end of December, said it was due to strong growth in retail advances and “resurgence in SME & corporate advances.”

Encouraged by the revival in corporate credit, SBI now expects to end the year with 9 per cent credit growth as compared to 8.5 per cent projected earlier.

Dinesh Khara, chairman, State Bank of India, said that on the corporate side, there is improvement in utilisation of limits. The unutilised portion in limits has come down from 51 per cent in September 2021 to 43 per cent in December 2021.

“We expect that this trend will be further extended. The utilisation (of sanctioned limits) by the corporates will further improve the loan growth, which eventually leads to better numbers. It appears to us this is a sustainable trend,” Khara had said in the post earnings call with the media on Saturday.

“Our retail segment has done well and will continue to do well. Now, we expect to see good growth from corporates and SMEs also. We had said 8.5 per cent (loan growth projection for FY22), but we will be inching towards 9 per cent,” Khara said.

In January 2022, SBI extended credit worth Rs 15,000 crore. It has a pipeline of over Rs 4 trillion.

Atanu Das, managing director and chief executive, Bank of India (BoI),  said with good traction in segments like retail and agriculture, the bank expects to grow advances by 7-8 per cent in FY22. 

This is higher than the estimate of 5-6 per cent growth (YoY) made at the beginning of the financial year. 

BoI’s total advances increased 5.40 per cent YoY to Rs 4.37 trillion till the end of December 2021.

Bank credit growth fell to 5.6 per cent in the previous financial year, as strict lockdowns during the first part of the year impacted economic activity. 

The economy was slowing even before the pandemic, as loan growth in the financial year 2019-20 was only 6.1 per cent. 

Banks had also turned risk averse in the last few years after bad loans started to surge since the beginning of the last decade.

The tide could be turning. After contracting 7.3 per cent in 2020-21, the economy is expected to grow by 9.2 per cent in the financial year. The government expects GDP growth between 8 and 8.5 per cent in the next financial year.

Another large public sector lender — Bank of Baroda (BoB) — said it is hopeful that the growth projection of 7-10 per cent in the current financial year would be met.

“We have been guiding that we expect our book to grow between 7 and 10 per cent in FY22. I believe we should be able to deliver in that range,” said Sanjiv Chadha, MD & CEO, Bank of Baroda.

“We believe that next year, we should be looking at double-digit credit growth, and as of now, our prognosis is that the market should grow by 10-12 per cent. Our stance is we want to grow at the market rate or better than it, without compromising on margins,” Chadha said.

The recent spike in bond yields — after the Union Budget announced a massive government borrowing programme for FY23 — will also mean some of the corporates — that were tapping the markets for funds — will turn to banks as interest rates are much lower for loans.

“As bond yields go up, it would make sense not to lock in for the long term with relatively higher rates and see whether floating rates work better. I believe it is something that will manifest itself in the next few quarters,” Chadha said.

After finance minister Nirmala Sitharaman — in her Budget —  announced Rs 11.6 trillion net borrowing for the next financial year, yields on the 10-year government bond moved up 20 bps.

Yield of the 10-year AAA-rated corporate paper increased 15 bps and the AA+ one went up by 18 bps.