Mumbai The country’s largest lender State Bank of India (SBI) has doubled credit in the infrastructure sector, including roads, ports and power, in FY22, amid renewed demand for loans from private companies.
In FY22, around 10% of all new loans from the lender by value were towards the infrastructure segment, as against 3% in the previous financial year, showed the Basel III disclosures by the bank. SBI’s exposure increased across industries 3.5 trillion in FY 2012–both fund-based and non-fund-based- of which were incremental credit to the infrastructure sector 34,167 crores. In the last financial year, SBI’s exposure to all industries increased 1.5 trillion from FY20, of which infrastructure loans accounted for 4,614 crores.
The state-owned lender seems to have stepped up its efforts to finance infrastructure at a time when the government is aggressively pushing for capital expenditure expenditure to fuel a Covid-hit economy. In FY23, the central government allocated 7.5 trillion for capital expenditure, 35% more than the previous fiscal. Data from the Reserve Bank of India (RBI) shows that bank credit to the infrastructure sector grew 10% in April from a year ago.
Experts tracking the banking industry said infrastructure funding was not happening for the longest time, especially after the last round of post-stress funding, which included power, coal and some other sectors. Banks had become very cautious about infrastructure financing. This was also partly because they lacked sufficient capital to finance large infrastructure projects. Initially new projects are generally risky and not very capital efficient, requiring banks to allocate more capital against such borrowings. “Things have improved a bit, although the recovery is not quite as comprehensive. Shashwat Guha, Senior Director (Indian Bank Ratings), Fitch Ratings said, “We believe that State Banks are still very cautious and selective as their capital buffers are still relatively weak.
SBI has also seen better utilization of loans sanctioned earlier, but now being used only by companies. Till March 31, 46% of SBI’s working capital limit remained unutilized, as against 50% at the end of December last year. For term loans, unutilized loans account for around 19% of the sanctioned amount, and the bank believes this points to a possible loan offtake in 2022-23.
SBI Chairman Dinesh Khara said after announcing the bank’s March quarter results on May 13, “We have already given clearances for ports and airports and are going to finance a number of infrastructure related activities.”
India’s largest lender is not alone in its uptake on infra financing. Large lenders like Bank of Baroda and Canara Bank have also seen a rise in such loans in FY22. While Bank of Baroda’s infrastructure exposure grew by 34%, Canara Bank saw an increase of 32% in infrastructure loans.
“We are very active in Hybrid Annuity Model (HAM) projects, infrastructure projects, steel, even power and renewable energy to a lesser extent. We are seeing growth, not in one region, but spread across different sectors,” Canara Bank Chief Executive LV Prabhakar told analysts on May 6.
The state-owned lender, Prabhakar said, expects its loan book to grow by over 8% in FY23, given the kind of loan inquiries and capex demand it is seeing.
Moreover, with the National Bank for Financing Infrastructure and Development (NABFID) yet to begin financing infrastructure projects, the heavy lifting is expected from banks, especially state-owned ones. In March, former ICICI Bank chief and NABFID chairman KV Kamath said it would start operations in the first three months of FY23.
Bank loans to corporates were revived in FY22, with lenders loosening their purse strings to fund infrastructure projects and meet growing working capital needs. This spurt in demand and banks’ willingness for infrastructure propelled corporate credit growth to an eight-year high in 2021-22. As a result, corporate loans grew by 7.1% in FY12, as against a contraction of 0.4% in the previous fiscal, RBI data showed.