HDFC Bank expects double-digit loan growth in FY19 on credit expansion

After clocking just under 10% growth for almost a year, credit expansion fell to under 5% starting November 2016

The banking sector has the potential to touch double-digit loan growth next year as there are signs of corporate demand picking up and other credit avenues stabilising, a top official of HDFC Bank has said.

After clocking just under 10 per cent growth for almost a year, credit expansion fell to under 5 per cent starting November 2016. Since then it has been struggling to cross the double-digit mark on a sustained basis due to the impact of demonetisation and the implementation of goods and services tax (GST).

"The demand so far has been essentially driven by working capital and some short term loans and, may be, a little bit of brownfield capex but you have not had a meaningful private investment especially from the private sector to give a boost to corporate credit demand," Deputy Managing Director Paresh Sukthankar said.

The good news is that on the working capital side, given that commodity prices have moved up from the bottom, as volumes increase there would be higher demand for capital, he said.

"But till you have a further pick up in the capex related demand, you cannot expect reversal in the trend... It’s been long time now for single digit loan growth for banking industry...when you go into next year if double digit loan growth possible? I think it is if some of these issues play out," he said.

A major portion of loan demand until a few months ago was met through commercial paper, bonds, foreign currency borrowings, while dependence on bank credit was less due to interest rate arbitrage.

Expressing hope of a pick up in the next couple of quarters, Sukthankar said, "I would still think that all of the factors have played out. I am not going suggesting that there is going to be huge capex demand, but share of the pie with others probably stabilising now...growth in corporate credit from now will move to banks," he said.