After two years of credit contraction, loan demand is rebounding: SBI’s Chairman

According to Dinesh Kumar Khara, companies are steadily drawing down from a $71 billion loan pipeline.


Cutbacks in consumer spending due to soaring inflation and increased borrowing prices are failing to dampen expansion plans at Indian companies using the country’s top lender, indicating that Asia’s third-largest economy is on the mend.

Dinesh Kumar Khara, chairman of State Bank of India, told Bloomberg News in an interview at his Mumbai office that companies are steadily drawing down from a $71 billion credit pipeline. Loan growth at the 216-year-old lender, which serves one out of every three Indians, is projected to be strong, fueled by business demand following two years of credit contraction, according to Khara.

This is consistent with a pattern in which India’s banking system, worth Rs 120 trillion ($1.5 trillion), is growing at its quickest rate in three years. While some of the credit demand is being used to pay rising costs, the majority of it is being used to fund business expansion and capacity expansion.


“Whether it is working capital loans or term loans, the draw downs have been rising, and the ratio of pipeline to loan book narrowed by at least six percentage points in recent months,” Khara said. “Capacity utilization at several sectors like iron and steel is full, and if we get a good monsoon too this year, things will get way better” he added.

Despite rising funding costs, India’s company confidence and credit demand are increasing. The central bank’s rate-setting panel boosted the benchmark interest rate for the second month in a row on Wednesday to combat inflationary pressures, with policymakers promising to phase out the pandemic-era monetary stimulus in the coming months.

Because of the increased demand for loans, SBI will need to improve its capital adequacy ratio, which is now less than two percentage points above the statutory minimum. The bank has the smallest overall capital cushion among the country’s leading lenders, at 13.8 percent.


Financial Growth

SBI plans to sell bonds to boost its capital base, according to Khara. After India began adopting the strict Basel III capital regulations in 2013, the firm sold so-called Tier 1 bonds in December at the lowest coupon among Indian banks, which can be totally written off in a crisis.

SBI shares have increased by roughly 150 percent in the last 21 months under Khara’s leadership, making it the top performance on the 10-member BSE Bankex index. The 61-year-old banker began his career at the firm in 1984 as the son of a Reserve Bank of India official and rose through the ranks to become chairman in October 2020.

The lender’s investment revenues are declining as rising yields erode the value of its debt assets, posing a problem for Khara. As of March 31, SBI had nearly Rs 7 trillion in government assets, including federal and state securities, according to exchange data.

Higher yields on certain debt instruments, including as those issued by state governments, will cushion the impact on the bank’s treasury earnings, according to Khara. As credit growth outpaces deposits, debt securities holdings will decline as a percentage of total assets.

Pushing Digital

Khara, who started working in banking right after college, sees the lender’s focus on digital efforts as a key accomplishment. According to him, the rate at which the bank’s 467 million customers are adopting its mobile banking app, Yono, or You Only Need One, is many times faster than when they first adopted digital banking years ago.

However, according to the banker who coordinated the merging of ten banks into SBI, the lender has no ambitions to expand its digital banking capabilities through acquisitions. It also shelved earlier talks about carving apart a separate app in favour of increasing investment in it.