Growth from infra to keep credit demand buoyant: S&P

Banks in India continue to witness good demand for loans on demand for funds for large scale investment in infrastructure projects, acquisitions by companies, and a resurgent demand for working capital and capital expenditure, a study by Standard & Poor’s (S&P’s) said.

Rebounding economic growth would boost growth in banking sector, said the S&P study titled “The Indian banking industry is resilient and buoyed by strong economic growth prospects”. The banking sector would continue to grow despite the challenges of high domestic inflation, intense competition, and evolving risk management processes, said S&P in a statement.

Secured retail credit would pick up due to an increase in auto and housing sales, attractive interest rates, and improved job security, the study said. It expects credit growth of 20 per cent in the year to March 31, the same as by the Reserve Bank of India (RBI).

“A robust economy, along with a stable retail deposit base and a prudent regulatory environment, has underpinned the resilience of India’s banking sector to the global financial slowdown,” the statement cited Geeta Chugh, an analyst with Standards & Poor’s.

Non-state owned banks that have credit rating and are well capitalised have a good access to capital markets, improving their chances for attracting capital for growth. Public-sector banks, which were earlier constrained by the necessity to maintain at least 51 per cent government stake, can now benefit from its Rs 16,500 crore re-capitalisation plan, it said.

There was a rise in net non-performing loans of banks to 2.5 per cent of their loans as of March 31 from 2.2 per cent a year earlier, in line with its expectations, it said.

Still, the rise in bad loans was neutralised by the rapid rebounding of the Indian economy, modest leverage and low exposure to sensitive sectors.