Fast growing credit demand in Q3 indicates revival of pvt capex cycle: Report

Credit growth, which has been lagging deposits for years, turned buoyant in the third quarter of this fiscal by a wide margin at ₹3.5 lakh crore as against a steep ₹2.2 lakh crore decline in deposits, pointing to corporates’ plans for capacity expansion across sectors, SBI Research said in a report on Wednesday.

Credit growth across banks, which had considerably weakened since FY20, picked up significantly and was at 7.3% till December 17, 2021 — a tad lower than the pre-pandemic level of 7.5% in December 2019.

On the other hand, deposit growth, which had consistently been in double digits since the beginning of the pandemic and was at 12.3% in March 2021, declined to 9.5% in December — lower than the pre-pandemic level of 10%, SBI Research said.

The Q3 of FY22 has seen a visible expansion in credit growth across sectors with incremental CD (credit-deposit) ratio at 133 in Q3 as against only 2 in the first half of the year. Incremental deposits declined by ₹2.2 lakh crore during this time while net credit sales rose by ₹3.5 lakh crore, said Soumya Kanti Ghosh, group chief economic adviser at the State Bank of India.

The share of private participation in the investment announcements rose to 70 per cent from around 50 per cent a year ago, indicating revival of the capex and Gujarat, Maharashtra, Tamil Nadu, Karnataka and UP contributed 55 per cent of the new investment announcement in FY’22.

Sectors where demand for credit started picking up during last three months includes NBFCs, telecom, petroleum, chemicals, electronics, gem & jewellery and infrastructure including power and roads, which are seeing big-ticket disbursements, SBI Research said.