SBI Composite Index remains flat in October 2016

SBI says manufacturing growth may remain flat and IIP in the negative territory in September and October 2016

The yearly SBI Composite Index for October 2016 remained stationary at 50.2 (Low Growth), compared to September 2016. The Monthly Index declined marginally to 52.1 (Moderate Growth) in October 2016 from 52.6 (Moderate Decline) in September 2016.

The SBI economic research department believes in the coming months of September and October, manufacturing growth is likely to remain flat and IIP growth may even continue to remain in the negative territory. The fortnightly data of ASCB indicates that credit off-take (YoY) continues to be a laggard and is at 10.4% in 30 September 2016. However, after adjusting for UDAY bonds, bank credit growth as of September 2016 comes out to be 12.9% as compared to the actual growth of 10.4%.

The SBI economic research department expects that the credit cycle will turn for the better in a gradual manner. The good thing is that a part of the slowdown in corporate credit growth in the current fiscal is because of deleveraging by corporates and subsequent repayments. Retail credit growth continues to be strong. Additionally, about 48% of the credit upgrades in H2 FY2016 was due to better order book/ healthy demand, improvement in profit margins and efficient management of working capital.

One important feature of India's banking system is that data on deposits rate movements and even lending rate indicates that banking industry still follows SBI rate action, be it either deposit or even MCLR rates.

Also, the SBI economic research department expects a faster rate of MCLR transmission by banks in the coming days as inflation will rapidly decelerate to sub 3.5% in November and RBI will cut rates. It even believes that inflation will materially stay below 4% beginning October, possibly for 3-4 months.

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