ICICI Bank, Kotak Mahindra logged their best performance in at least five years as corporate credit gathers momentum amid capacity expansions and as retail demand for cars and homes remains largely unaffected by the recent surge in inflation. While interest rates may be rising, business outlook for many industries is strong and rising incomes of the middle class are set to ring in profits even as bad loans shrink.

"We were very cautious, but we see growth coming back," said Sumant Kathpalia, MD, IndusInd Bank. "I think the economy is looking up. We never expected a rebound in July the way it has happened. We are seeing MFI demand coming up. We are seeing demand from corporates coming up. We have given an indication of 16% to 18% growth."

IndusInd bank posted a 54% rise in its total advances to ₹1.33 lakh crore. The main drivers came in from the vehicle finance book that expanded 26%; non-vehicle finance which is contributed by business loans, LAP and credit cards grew by 16%.

For ICICI Bank loans expanded 21.3% on year with retail loans climbing 24%, business banking portfolio growing 45% and domestic wholesale banking portfolio rising 14%.

Kotak Mahindra Bank posted strong loan growth of 29% with 35.2% of these incremental advances coming in from the unsecured segment.

"The overall lending atmosphere is also conducive to take some risks," said Dipak Gupta, joint MD, Kotak Mahindra Bank. "After all, the unsecured lending also gets us better margins."

Bank credit growth at 14.4% as of July 1 is at a three-year high with corporate demand coming back as the economy revives after lifting of Covid restrictions.

"We have seen a good traction with demand picking up in the economy, we are seeing the first quarter where credit growth is higher than deposit growth," said Debdatta Chand, executive director, Bank of Baroda.

Credit growth has successively picked up over the last four-five fortnights. But economists say a lot of demand is working capital demand due to surge in raw material prices rather than for Capex.

Borrowers come to banks when capacity utilisation is higher than 70-80%. We are seeing a few companies coming with such high capacity utilisation in the steel and cement sector. "Pick up in capacity utilisation varies from sector to sector," said D K Joshi, chief economist,Crisil . "It is a skewed investment activity taking place. The 14.4% credit pick-up is partly because of high inflation."

Other factors are driving bank credit growth . A lot of this is because of high commodity prices. There is increasing diversion of funds from the markets. Also, there is demand for funds (from importers) because of dollar depreciation.

"I agree there is a significant amount of new capex but the problem is for the medium-sized segments because the larger players are sitting on enough cash reserves and are not coming to banks," said Sugata Bhattacharya

Courtesy: ET