Sbi bets on recovery in business credit to drive growth in FY23

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“We are optimistic that in the coming days the environment will be conducive to growth in business credit,” said Dinesh Khara, chairman of SBI, after announcing the bank’s financial results for the March quarter.

Given the bank’s unused portion of working capital and term loan limits, as well as outstanding loan proposals, the bank has credit visibility of approximately 4.6 trillion. Businesses are already using more of their bank-sanctioned working capital limits, at 56% now, with demand for business credit accelerating from the December quarter.

“Going forward, we see much better capacity utilization in terms of working capital,” Khara said.

During the March quarter, business loans increased by 6.35% compared to the previous year, 8.7 trillion as of March 31. Admittedly, the bank’s credit growth is still driven by the retail segment, which has now expanded to 10.02 trillion as of March 31. That said, the strong push in infrastructure investment spending by the government in the Union budget for FY23 is expected to kick-start the private investment spending cycle, improving the outlook for lending growth.

“We have already sanctioned ports and airports and will fund a lot of infrastructure-related activities,” Khara said, adding that as long as there is demand in the economy, there is bound to be investment.

Last year, Khara said, India saw significant growth in exports and sectors like textiles, where there was hardly any activity, attracted a lot of interest.

“The way things are going this year, I think it will be a scenario where there will be demand for all infrastructure needs. We are hopeful of strong demand from the enterprise side and also from small and medium enterprises (SME),” he said.

In fact, Khara does not see the turn in the rate cycle dampening demand. He said that through an internal study, the bank discovered that interest charges for any business range from 8% to 15% of their total expenses. In a scenario where this cost increases by 100 basis points (bps), companies borrowing at 8% interest would still be borrowing at around 9%.

“If there is demand, there will be capacity, there will be production and there will be ready. Yeah optically when rates go up 40 basis points it looks like it’s probably a shock but when you look at the overall context it might not [such a shock],” he said.

Khara has repeatedly in the past pointed out how abundant liquidity leads to poor risk assessment among lenders. On Friday, he said that now that the rate hikes have begun, those risks will hopefully be a thing of the past.

“I spoke about the mispricing of risk about nine months ago and it was a time to declare it. As for the current scenario, we have to wait and watch because the movement of interest rates has only been observed in the recent past,” he said.

On Friday, the bank announced a net profit of 9,114 crores in the three months to March, up 41.3% from the same period last year. This increase is explained by a 15.3% growth in net interest income or the difference between interest earned and interest paid. The bank’s domestic net interest margin (NIM), a key measure of profitability, came in at 3.4%, unchanged from the previous quarter. SBI’s gross non-performing assets (NPA) represented 3.97% of its total loan book, down from 4.5% in the December quarter.

“Wherever we had the slightest doubt, we have already planned. So I don’t think we would have any surprises coming from the NPAs,” Khara said.

Shares of the bank on BSE stood at 445.05 on Friday, down 3.76% from their previous close.

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