Cuts in consumption due to runaway inflation and rising borrowing costs fail to hamper the investment plans of Indian companies tapping the country’s largest lender, a sign that the recovery of the third largest economy of Asia is accelerating.
Companies are regularly tapping into a $71 billion loan pipeline, State Bank of India chairman Dinesh Kumar Khara told Bloomberg News in an interview at his Mumbai office. Loan growth at the 216-year-old lender, banker to one in three Indians, is expected to be robust, supported by business demand after two consecutive years of credit crunch, Khara said.
This broadly reflects a trend that loan growth in India’s 120 trillion rupees ($1.5 trillion) banking system is growing annually at its fastest pace in three years. While part of the demand for credit is used to cover rising costs, the rest is used for business expansion and investment in adding capacity.
“Whether working capital loans or term loans, drawdowns have increased and the pipeline-to-loan portfolio ratio has shrunk by at least six percentage points in recent months,” said Kara. “Capacity utilization in several sectors like iron and steel is full, and if we also get a good monsoon this year, things will be much better.”
The rise in business confidence and demand for credit in India comes despite the rising cost of funds. The central bank’s rate-setting committee on Wednesday raised the key interest rate for a second straight month to rein in inflationary pressures, with policymakers pledging to withdraw pandemic-era monetary stimulus within months. coming.
The growing demand for loans means that SBI will have to strengthen its capital adequacy ratio, since it hovers less than two percentage points above the minimum regulatory requirement. The bank’s overall capital cushion of 13.8% is the lowest among major lenders in the country.
SBI will aim to sell bonds to increase its capital base, Khara said. The lender in December sold so-called Tier 1 bonds, which can be fully redeemed in a crisis, at the lowest coupon among Indian banks after the country began implementing strict Basel III rules on equity in 2013.
With Khara at the helm over the past 21 months, SBI shares have jumped around 150%, making it the best performer in the 10-member BSE Bankex Index for the period. The 61-year-old banker, son of a Reserve Bank of India official, started working at the lender in 1984 and worked his way up to become chairman in October 2020.
A challenge for Khara is falling investment profits at the lender as rising yields erode debt prices. The SBI held government securities – including federal and state securities – worth around 7 trillion rupees as of March 31, according to the exchange documents.
Higher yields on some debt securities, including those of state governments, will soften the blow to the bank’s cash income, Khara said. As a share of overall assets, holdings of debt securities will also decline as credit growth outpaces deposit growth.
Khara, who got into banking straight out of college, sees the lender’s push for digital initiatives as his biggest achievement. The rate at which the bank’s 467 million customers are adopting its mobile banking app – Yono or You Only Need One – is several times greater than the rate at which they adopted digital banking services years ago, he said. .
However, the lender has no plans for acquisitions to bolster its digital banking prowess, said the banker who oversaw mergers of 10 banks with SBI. It also set aside earlier talks to build its digital app and instead increased its investments.
“The plan is to grow profitably. We have made progress in most operational parameters in recent years, which we hope to maintain,” Khara said.