According to a recent report by the State Bank of India (SBI), the credit growth of banks in India is expected to remain low due to the increasing use of alternative funding sources by corporates in the current low-interest-rate regime. The report suggests that corporates are taking advantage of the low-interest-rate environment to raise funds from other sources, such as bonds and commercial papers, rather than relying on traditional bank credit.
The SBI report notes that the credit growth of banks has been slowing down over the past few years, and this trend is likely to continue in the near future. The report attributes this slowdown to the increased use of alternative funding sources by corporates, which has reduced their dependence on bank credit. The report also notes that the low-interest-rate regime has made it more attractive for corporates to raise funds from other sources, such as bonds and commercial papers, which offer more competitive interest rates.
The report highlights that the use of alternative funding sources by corporates has increased significantly in recent years. For example, the issuance of corporate bonds has increased by over 50% in the past year, while the issuance of commercial papers has also seen a significant increase. This shift towards alternative funding sources has reduced the demand for bank credit, leading to a slowdown in credit growth.
The SBI report also notes that the low-interest-rate regime has made it more challenging for banks to grow their credit books. With interest rates at historic lows, banks are finding it difficult to maintain their net interest margins, which has impacted their profitability. The report suggests that banks will need to adapt to the changing landscape and explore new avenues for growth, such as increasing their focus on retail lending and fee-based services.
Overall, the SBI report suggests that the credit growth of banks in India is likely to remain low in the near future, driven by the increasing use of alternative funding sources by corporates and the challenges posed by the low-interest-rate regime. The report highlights the need for banks to adapt to the changing landscape and explore new avenues for growth in order to remain competitive. As the Indian economy continues to evolve, it will be interesting to see how banks respond to these challenges and find new ways to grow their business.