12% annual credit growth needed to reach $5 trillion mark by 2025 Says SBI MD.

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Banks' credit must grow 12% to meet $5 trillion economy target

The credit from banks must grow by 12 per cent every year to meet the Centre’s target to achieve a $5-trillion economy within the next five years and the step taken for mergers of the PSBs is in the right direction to meet the goal, a top SBI official said. Against the bank credit of about Rs 98 trillion at present, the desired level should be Rs 400 trillion to achieve the target of $5 trillion economy by 2025, he said.

Khara said, the merger of SBI with its own associates led to the savings of Rs 4,350 crore in terms of rationalising human resources and bank branches, Rs 1,800 crore savings came from integrated services at large, including saving and treasury operations, and Rs 400 crore savings came in form of reduction in cost of resources. “In previous mergers, size was a major consideration. However, the present ones are aimed at capital efficiency…While merger is going to be painful in initial years, scaled benefits due to rationalisation of cost structure will lead to better domestic and global reach of Indian banks,” said Khara.

Banks' credit must grow 12% to meet $5 trillion economy target

“Though mergers create initial pain points, the benefits, in the long run, will far outweigh the former and an efficient use of capital, manpower will help the economy evolve into a globally significant one,” he added. “This (today’s announcement) is something that will open up new avenues for corporate to reconsider because the profits that will be available for corporate to pay dividend or to invest will be higher. So it will be an added incentive for corporate to invest,” he said.

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SBI’s corporate loan book grew by about 10 per cent in FY-19 over FY-18. While the bank has registered an overall credit growth of about 6 per cent on a year-on-year basis so far this year, but it is largely driven by retail sector, he said. “Demand for capex is not coming as corporates are yet to utilize existing capacities. At present, they don’t see large ticket investment opportunities,” said Verma.

Also,banks are highly cautious in lending to sectors like NBFC, and apart from external credit ratings and now also depending on internal credit ratings for giving loans, he added.

 

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