Credit growth to rebound as IPO liquidity spent and working capital demand rises: SBI
New Delhi [India]December 1 (ANI): Credit growth of banks in the country, which has slowed in recent quarters, is expected to pick up as companies start attracting more funds for their day-to-day operations, according to a report by State Bank of India.
The report stated that the recent decline in loan take-up was temporary and was mainly linked to increases in IPO fundraising seen in various sectors. With these funds being used now, the demand for bank loans is likely to increase in the coming quarters.
“However, corporate credit growth is likely to pick up in the coming quarters due to increased working capital utilization,” he said.
According to historical data, there is no direct one-to-one connection between the amount raised through IPOs and overall bank loan growth.
However, past trends show that years with higher IPO mobilization often coincide with lower credit expansion. The negative correlation, although modest, suggests that when companies raise large sums of money from stock markets, their need to borrow from banks temporarily decreases.
Sectoral data also supports this trend. Sectors such as finance, automobiles, pharmaceuticals, telecom, consumer durables and infrastructure recorded lower credit growth in years when they raised higher funds through public offerings.
Much of this money is typically used for expansion, capital expenditures or debt repayment, reducing the immediate need for bank loans.
However, the report now shows signs of a turnaround. Companies across various sectors have begun to increase their use of working capital, which is an important early indicator of improvement in credit demand.
As business activity remains strong and production levels rise, companies need more financing for raw materials, inventory, supply chain operations and other operational expenses. With internal funds and IPO proceeds largely distributed, companies are turning to banks for new loans.
While the country’s overall economic momentum remains healthy, supported by strong GDP figures, increased activity is naturally pushing companies to seek higher financing, which will be reflected in stronger credit growth.
In this environment, the report mentioned that the role of the Reserve Bank of India has become important. The central bank is expected to continue proactive liquidity management to ensure that banks have sufficient funds to meet the upcoming surge in credit demand.
Having sufficient liquidity in the system will ensure that borrowing conditions remain stable and support the recovery in credit growth.
India’s credit growth is poised to recover in the coming quarters as working capital requirements increase, IPO-related impacts ease and economic activity remains strong, the report said. (MOMENT)
