There is a good news for the banking sector. A new report has come from State Bank of India (SBI) which says that the loan distribution of banks, which had slowed down a bit for some time, is now going to pick up pace again. The report says that as companies need money for their daily operations, the demand for loans will also increase.
Why did the pace of loans slow down?
SBI has clarified that the recent decline in loan demand was not a major problem, but was just a matter of time. The biggest reason for this was the flood of IPOs in the stock market. Many companies raised a lot of money from the market by launching IPOs. When cheap money from IPO came into their pockets, companies thought, “Why take a loan from the bank and pay interest?” He completed his work with the same money and also repaid his old loans. Due to this reason, the business of banks had slowed down a bit. According to the latest report of SBI, “That IPO money has now almost been spent, so now the companies will have to knock on the doors of banks again!”
Also read: Rupee: Heavy fall in rupee against dollar, reached all-time low of 89.79 in intra-day trade.
When SBI searched the old records, an interesting thing came to light. Although there is no direct ‘one-for-one’ connection between IPO and bank loan, it is often seen that both move in opposite directions. In the year when companies raised more money from IPOs, they borrowed less from banks. When one is getting money from the stock market, then who will go to the bank? Statistics show that the sectors which made a splash in IPO, took less bank loans. These sectors include finance, automobile, medicines, telecom, consumer durables and infrastructure etc.
Also read: Gold-Silver Price: Rise in silver price by Rs 3500, new record made, gold price also increased by Rs 1200
Now why is the demand for working capital increasing again?
According to the SBI report, now changes are visible again. Companies are now asking for money for ‘working capital’ i.e. daily expenses. This is sure proof that the demand for loans is coming back. The country’s economy is doing well, GDP figures are strong and production in factories is increasing. When work increases, cash will be required to purchase raw materials and run the supply chain. The companies’ own money and IPO funds have now been used. Now for new work they will have to take a loan from the bank again. SBI believes that companies are now utilizing their credit limits more, which indicates that loan growth will be excellent in the coming days.
Also read: The Bonus Market Update: Stock market boom due to GDP data, Sensex-Nifty at all-time high
What is the role of RBI in such a situation?
Now in such an environment the role of RBI becomes very important. SBI says that the central bank will just have to take care that there is no shortage of money in the system. RBI has to ensure that banks have enough cash to distribute. If liquidity remains in the system, interest rates will remain under control and it will be easy to take a loan.
