Mumbai State Bank of India (SBI) expects a pick-up in corporate credit this year on the back of fresh investment in infrastructure projects by the government and fresh demand from large borrowers.
SBI Chairman Dinesh Khara said after announcing the bank’s March quarter earnings, “We expect the environment to be conducive for corporate credit growth in the coming days.”
Considering the bank’s unutilized portion of the working capital limit and term loans and loan offers, the bank has visibility on credit of approx. 4.6 trillion. With the demand for speed up corporate credit taking from the December quarter, companies are already using a major part of their bank-approved working capital limit, which now stands at 56%.
“We are seeing better capacity utilization in terms of working capital,” Khara said.
On Friday the bank recorded a profit of 9,114 crore in the three months through March, up 41.3% from a year ago. This was driven by a 15.3% increase in net interest income, or the difference between earned and expensed.
The bank’s domestic net interest margin (NIM), a key measure of profitability, stood at 3.4%, unchanged from the previous quarter. SBI’s gross non-performing assets (NPAs) accounted for 3.97% of its total loan book, up from 4.5% in the December quarter.
“Wherever we had the slightest doubt, we have already provided. So I don’t think we will be surprised by NPAs.”
The bank’s shares fell 3.76% on Friday 445.05 on BSE.
Corporate loans up 6.35% in March quarter over last year 8.7 trillion as of March 31. The bank’s credit growth is still led by the retail segment, which has now expanded 10.02 trillion as of March 31. That said, the large infrastructure capex by the government in the Union Budget for FY13 is expected to restart the private capex cycle, improving prospects for credit growth.
“We have already given clearances for ports and airports and are going to finance several activities related to infrastructure,” Khara said. He said that as long as there is demand in the economy, investment is bound to happen.
Last year, Khara said, India saw significant growth in sectors such as exports and textiles, where there used to be hardly any activity.
“The way things are developing this year, I think it is going to be a scenario where there will be demand for all the infrastructure requirements. We will see strong demand from the corporate side and also from small and medium enterprises (SMEs). Very hopeful about it.”
In fact, Khara does not see demand slowing down due to rising interest rates. He said that an internal study conducted by the bank has found that the interest cost for any corporate varies from 8% to 15% of their total expenditure. In a scenario where this cost increases by 100 basis points (bps), corporates borrowing at 8% interest will still borrow at around 9%.
“If there is a demand,