Corporate loan is likely to pick up from October due to the sharp cut in corporate tax rates and festive season sales, State Bank of India’s deputy managing director Sujit Kumar Varma said on Friday.
Varma said in first two quarters of the current fiscal, the loan growth was mainly driven by retail credit, while there was a negative growth in corporate loan. Private sector investment was largely muted in the last 12-18 months. “There was not much investment demands from the private sector. The credit demand mainly came from public sector undertakings. There was some demand coming from the oil and gas sector and from city gas distribution projects,” he told reporters on the sidelines of a banking colloquium organised by the CII.
According to him, nobody would come for fresh borrowing with around 70-80% capacity utilisation for corporate sector, “Nobody is willing to commit new capital expenditure. They are doing existing investment only which was committed earlier,” he said. Varma said after the government’s announcement of a major cut in headline corporate taxes for domestic companies, incentive to invest will naturally go up in the corporate sector.
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“This (corporate tax cut) is something that will open up new avenues for corporate to reconsider because profits that will be available for corporate to pay dividend or to invest will be higher. So, it will be an added incentive for corporate to invest,” Varma said, adding the timing of the tax cut announcement also coincided with the festive season, which is when credit demands traditionally pick up. Earlier, speaking at the banking colloquium, SBI managing director Dinesh Kumar Khara said the proposed mega bank merger would help strengthen the country’s banking system.