Make in India to facilitate credit growth in 2016-17

Reported by: |Updated: May 23, 2016

MIDHANIMakeInIndia

Kishor Kharat, MD & CEO, IDBI Bank, is convinced about the credit growth boost arising from the Make in India program, and has geared up his bank organizationally:

Mehul Dani: How will the ‘Make in India’ program benefit India’s financial sector?

Kishor Kharat_wKishor Kharat: Under the ‘Make in India’  program,  focused  approach  has been adopted on creating jobs and skill enhancement  in  25  sectors.  It  contains various  proposals  designed  to  urge companies – local and foreign – to invest in  India.  Coupled  with  various  other initiatives  taken  by  the  government  to improve  the  ease  of  doing  business  in the  country,  the  program  has  led  the next  wave  of  investment  and  growth. Consequently, investment in new projects in manufacturing sector posting robust growth  as  is  evidenced  by  increase  in investment  from  `58,149  crore  as  on September  2014,  rose  to  `104,347 (estimated) as on March 2016, marking a  growth  of  79.45%  during  the  period in consideration. Even on an annualized basis,  investment  in  new  projects  in manufacturing sector grew by 17.25% in March 2016 over March 2015

While some of the investments have been  led  by  increasing  FDI  inflows  in the country as was the intent under the program, there has been distinct, albeit modest, growth in bank credit as well. This is underscored by the rise in outstanding bank credit to `7,277,650 crore as on 18 March  2016 vis-a-vis `6,830,240 crore as on 2 October 2015, marking a growth of 6.55% during the period. As on 18 March 2016,  the  growth  in  bank  credit  on  an annualized basis, i.e. over corresponding period of previous year, was 11.34%, which is significantly higher when compared to an annualized growth of 9.05% in bank credit as witnessed in end-March 2015.

For  the  year  2015-16,  the  overall credit growth is likely to be around 12% Credit  growth  has  remained  below  the historical averages as meaningful growth in corporate credit is expected to come around with a lag due to various reasons including  excess  capacity  which  is  yet unutilized or underutilized. Additionally, there  is  a  lag  between  revival  in  credit demand and the actual pick-up in credit growth. This is because there is a time gap between conceptualization of a project and actual drawdown of the credit from the banks. For an infrastructure project loan, the gap may be of 3 years or even more.

However, the credit growth is expected to improve further in 2016-17 and thereafter, as the demand for credit picks up on the back of improving investor sentiments.

Which sectors are likely to generate direct and indirect loan demand?

IDBI  Bank  has  a  long  legacy  of industrial and infrastructure financing, including  roads,  highways,  aviation, ports, shipping, construction, automobile, renewable  energy,  thermal  power  and chemicals. Additional exposure would be taken up within the sector-specific caps mandated by IDBI’s board. The bank is striving to create a more diversified asset portfolio. We will consider newer sectors such as tourism and hospitality, wellness, defence, media and entertainment, etc. The  bank  is  also  proactively  working towards extending assistance to start-ups whose growth is expected to get further traction following the announcement of ‘Startup India’

How  has  the  ‘Make  in  India’  program contributed to the increase in loans?

Yes,  IDBI Bank’s advances in Q3 FY16 stood at `2.09 lakh crore. Among others, sectors  such  as  infrastructure,  mining and quarrying, chemicals and chemical products, construction, food processing, automobiles and textiles are among the top 20 industries to which the bank has exposure. Most of these industries have exhibited positive growth in Q3 FY16 vis- a-vis Q2 FY16, reflecting growing demand for credit in these segments.

How will IDBI Bank mitigate losses arising out of lending to such manufacturers?

As regard risk mitigation, we employ best  international  practices  in  the  area of  credit  risk  management  through employing robust risk assessment model for  large,  medium  and  small  industry proposals.  We  will  remain  selective  in extending  assistance  to  sectors  where the exposure and concentration are high. For projects that are stressed on back of various macroeconomic as well as sector- specific factors, the bank undertakes to restructure  those  exposures  provided techno-economic viability is established.