India's Bank Credit Growth to Rebound Post IPO Surge: SBI Report

An SBI report predicts a rebound in India's bank credit growth, which had slowed due to a surge in IPOs. With IPO funds utilized, companies are increasing working capital needs, driving up demand for bank loans in the coming quarters.

The credit growth of the banks in the country, which had slowed in recent quarters, is expected to pick up as companies begin to draw more funds for their day-to-day operations, highlighted a report by State Bank of India.

Impact of IPO Fundraising on Credit Growth

The report stated that the recent dip in credit offtake was temporary and mainly linked to the surge in IPO fundraising seen across several sectors. With those funds now being utilised, demand for bank loans is likely to rise in the coming quarters. It stated "But increased working capital utilization by corporates credit growth is likely to rebound in coming quarters".

According to historical data, there is no direct one-to-one link between the amount raised through IPOs and overall bank credit growth. However, past trends indicate that years with higher IPO mobilisation often coincide with lower credit expansion. The negative correlation, though modest, suggests that when companies raise large sums from equity markets, their need to borrow from banks temporarily reduces.

Sector-wise data also supports this trend. Industries such as finance, automobiles, pharmaceuticals, telecom, consumer durables and infrastructure recorded lower credit growth in years when they raised higher funds through IPOs. Much of this money is typically used for expansion, capital expenditure or debt repayment, which reduces the immediate need for bank loans.

Signs of a Turnaround and Rising Credit Demand

However, the report now sees the signs of a turnaround. Companies across several sectors have started increasing their working capital utilisation, which is a key early indicator of improving credit demand. As business activity remains strong and production levels rise, firms need more financing for raw materials, inventories, supply-chain operations and other operational expenses.

With internal funds and IPO proceeds largely deployed, corporates are returning to banks for fresh credit. With the country's overall economic momentum continuing to be healthy, supported by strong GDP numbers, a rising activity naturally pushes companies to seek higher funding, which will reflect in stronger credit growth.

Role of RBI in Supporting Credit Growth

In this backdrop, the report mentioned thatthe Reserve Bank of India's role becomes important. The central bank is expected to maintain proactive liquidity management to ensure banks have sufficient funds to meet the upcoming rise in credit demand. Adequate liquidity in the system will keep borrowing conditions stable and support the recovery in loan growth.

So, the report outlined that with working capital requirements rising, IPO-related effects fading, and economic activity staying robust, India's credit growth is set to rebound in the coming quarters. (ANI)

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