SBI says demand still remain a significant laggard in the system
The yearly SBI Composite Index for September 2016 is indicating a downward momentum and is at 50.2 (Low Growth), compared to last month's 52.7 (Moderate Growth), and above the benchmark level of 50. The Monthly Index declined to 50.8 (Low Growth) in September 2016 from 49.9 (Low Decline) in August 2016.The credit off-take (YoY) is at 9.8% in 02 September 2016, in single digit.
The bad thing is that Debt Weighted Credit Ratio worsens in FY2016 (All Rating Agencies) - the ratio declined below 1 in FY2016 - from 1.24 to 0.79 in FY2016. Hopefully, there should be a medium term course correction.
The SBI Economic Research Department expect that the credit cycle will turn for the better in a gradual manner. The good thing is that a part of the slowdown in corporate credit growth in the current fiscal is because of deleveraging by corporates and subsequent repayments. Retail credit growth continues to be strong. Additionally, about 48% of the credit upgrades in H2FY2016 was due to better order book / healthy demand, improvement in profit margins and efficient management of working capital.
Overall, demand still remain a significant laggard in the system. With the pay commission arrears implemented from August 2016, bank deposits have shown a sizeable growth in September (over 20% of the incremental addition in current fiscal is attributable to such). This will lead to increased consumer demand ahead of festive season. The SBI Economic Research Department is penciling in a 50 bp rate cut by RBI MPC in current fiscal.
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