India's Banking Sector Poised for Credit Growth Rebound

India's banks are set for a credit growth resurgence as companies are drawing on more funds for operations, says a State Bank of India report. Though IPO-led dips affected recent quarters, rising economic activity and working capital needs signal a promising recovery in credit demand.

In a promising development for India's banking sector, credit growth is expected to regain momentum as companies increasingly tap into funds for operational needs. According to a report by the State Bank of India, the recent slowdown in credit offtake was linked largely to elevated IPO fundraising across various sectors.

This fundraising, now deployed, is likely to spur an uptick in bank loan demand. Historical data shows no direct link between IPO amounts and bank credit growth, yet trends indicate a modest negative correlation. When companies source significant equity, their immediate borrowing from banks often dips.

Sector-wise analysis supports this, with industries like finance and infrastructure seeing lower credit growth amid higher IPO activity. Now, with increased working capital utilization, credit demand is showing signs of revival. Strong business activities, coupled with GDP growth, are propelling firms back to banks for fresh credit.

The Reserve Bank of India's role is crucial, ensuring liquidity management to accommodate burgeoning credit demands. As IPO effects wane and economic activity remains robust, credit growth is set to rebound, the report concludes.

(With inputs from agencies.)