The surge in commodity costs within the wake of the Russia-Ukraine warfare could have turned out to be a boon for banks in India as lenders at the moment are witnessing larger demand for working capital. The elevated value of uncooked supplies has led to corporations utilising their working capital limits and even searching for top-ups, in keeping with bankers FE spoke to.
The credit score offtake improved throughout FY22, with the gradual return of normalcy after two waves of the pandemic and regardless of a comparatively milder third wave. Non-food credit score prolonged by banks grew 9.7% year-on-year (y-o-y) as on March 25, in keeping with knowledge launched by the Reserve Bank of India. Growth in credit score to trade recovered to six.5% in February 2022 from 1% a 12 months in the past.
Rajneesh Karnatak, govt director, Union Bank of India, stated working capital limits which had been mendacity idle at the moment are getting utilised. “Corporates who have been utilising their limits have also been coming for additional working capital because the cost of production has gone up. The availing has increased by about 10%,” he stated. This development has emerged within the final one or two months because the Covid state of affairs improved and the Russia-Ukraine state of affairs led to cost will increase, Karnatak stated, including that larger prices have led to higher demand throughout sectors equivalent to metal, textiles, prescription drugs, chemical compounds and thermal energy initiatives.
In February 2022, State Bank of India chairman Dinesh Khara stated the unutilised portion within the financial institution’s working capital loans had fallen to about 43% from 52% in September 2021.
Crude oil costs surged to a 14-year excessive of $133 per barrel within the first week of March, and costs have been unstable since then, hovering round $110 per barrel. Base steel costs, measured by Bloomberg’s base steel spot index, elevated by 25% between September 2021 and March 2022.
“Rising commodity prices are certainly playing a part in the improved credit growth that you’re seeing. Utilisation is getting better and there is also more demand for LCs (letters of credit) by manufacturers,” stated a senior banker with a mid-sized non-public financial institution.
Credit to massive trade shrugged off an prolonged interval of contraction and sub-par progress to develop 0.5% in February 2022, led by engineering, chemical compounds, meals processing, leather-based, rubber and plastic merchandise. According to the RBI, infrastructure credit score, which accounts for 38% of the whole industrial credit score, grew 11.9% in February 2022, pushed by the street and energy sectors and the federal government’s capex push.
In its financial coverage report for April 2022, the RBI stated the firming up of world crude oil costs was the principle issue that impacted costs of business inputs equivalent to naphtha, aviation turbine gasoline, bitumen, petroleum coke and furnace oil. “They also contributed to double-digit inflation in high-speed diesel, which in turn drove up farm input price inflation. Other contributory factors comprise fertiliser prices that edged up in sympathy with international prices, and prices of some non-food articles that remained in double digits – raw cotton and oilseeds,” the report stated. The worth of electrical energy – a key enter in each industrial and farm inputs – additionally elevated sharply through the second half of FY22 in keeping with the revival in demand.
Source: www.financialexpress.com”