A growing interest rate cycle, wide spread, superior quality assets and risk-return metrics make corporate lending a profitable business, Managing Director Sanjiv Chadha Told ET.
Chadha said, “We believe the rate normalization cycle allows us to generate decent margins as well as decent growth, so we believe corporate debt will grow significantly faster for us than last year. ”
He said the bank would drop its conservative outlook on the corporate segment as the return ratio was improving.
“You always try to make sure that your decision based on a risk-return approach makes sense,” he said. “Last year, due to very high liquidity overhangs and unnaturally low rates, we found that the spreads available to us at times in the corporate segment were very low, given our risk appetite. So we were quite conservative in our growth. . corporate credit portfolio.”
After shrinking for several years, corporate credit hit a seven-year high in May as India Inc tightened capital expenditure plans. Outstanding credit in this segment registered a growth of 8.7% in May 2022 from a decline of 0.2% in the year-ago period.
The expansion was driven by strong growth in the micro and small (33.0%) and medium (49.3%) enterprises segments. This was driven by the application of digitization processes for ECLGS, low-base effect, higher working capital requirement, higher exports and faster loan approvals by banks.
The large enterprise segment (within the industry holding 75.7%) registered a growth of 1.9% in May 2022 (from a decline of 3.1% in May 2021) due to higher working capital requirements due to higher inflation, improving business activities, and tightening Transfer of borrowings to banking systems due to capital market rates.
“If we compare this with the corporate credit growth cycle 5-6 years ago, the asset quality will be much better because when we saw the last investment boom, it was based on a reckless investment cycle,” Chadha said. “We are now seeing a good degree of consolidation, and most of the expansion is coming from strong players. We are seeing significantly higher demand for investment credit than last year. We will still have to rely on the government. Heavy lifting but I believe the private corporate credit cycle will begin to strengthen.”
Chadha said the bank is witnessing credit growth especially in the steel, cement, roads and renewable energy sectors. Demand from the corporate segment is increasing as many sectors have seen de-leveraging and banks now see the potential to re-lender to large corporates.