Cos’ Ris­ing Work­ing Cap­i­tal Needs Post GST likely to Bring Wind­fall for Banks

The Economic Times - - Finance & Commodities - Saloni.Shukla@ times­

Mumbai: Banks may be one of the un­in­tended ben­e­fi­cia­ries of GST. As pay­ment de­lays haunt In­dian com­pa­nies amid tax credit claims, bankers ex­pect de­mand for work­ing cap­i­tal loans to surge. While this may not be suf­fi­cient enough to off­set the slow­down in the project loans seg­ment, it still gives banks an op­por­tu­nity to lend in­stead of keep­ing cash idle with the cen­tral bank.

Bankers be­lieve de­lays in claim­ing in­put cred­its, which ser­vice providers can un­der GST, may lead to an ab­nor­mal in­crease in work­ing cap­i­tal re­quire­ments. In­put tax credit al­lows a ser­vice provider to lower the tax it owes the gov­ern- ment, by al­low­ing it to claim a credit on what it has paid on in­puts.

“We saw some de­cline in draw­downs dur­ing the end of the quar­ter and de­mand from cus­tomer side was muted as busi­nesses were still deal­ing with regis­tra­tion and im­ple­men­ta­tion of GST,” said Jairam Srid­ha­ran, the chief fi­nan­cial of­fi­cer at Axis Bank. “We be­lieve small busi­nesses are still work­ing out how GST will im­pact them; how­ever a larger sec­tion of the or­gan­ised sec­tor has adopted GST and, in gen­eral, de­mand for loans should see an up- ward trend in the medium term. There could also be an in­creased work­ing cap­i­tal re­quire­ment as the tax pay­ment will need to be made ev­ery month be­fore the re­turn is filed.” As per lat­est RBI data, credit growth in the bank­ing sys­tem was 6.0% in June, which is still below the pre-de­mon­eti­sa­tion lev­els. Credit growth in the econ­omy con­tracted 1.7% dur­ing April-July 2017, com­pared with a mi­nus­cule 0.2% ex­pan­sion in the cor­re­spond­ing pe­riod last year, as per data pro­vided by Care Rat­ings. The low growth can be as­cribed to lack in­vest- ments, high NPAs com­ing in the way of banks’ in­ter­est in lend­ing and in­creased cap­i­tal re­quire­ments, be­sides mi­gra­tion of com­pa­nies to the debt mar­ket to raise funds. “There was a pickup in de­mand for cer­tain prod­ucts at the end of June, which helped cer­tain re­tail lend­ing prod­ucts,” said Paresh Suk­thankar, the deputy man­ag­ing di­rec­tor at HDFC Bank. “The ini­tial feel was that till peo­ple have their sys­tems ready, ac­tual sales will be im­pacted and once all of this is in­cor­po­rated into their sys­tem, there could be some in­crease in work­ing cap­i­tal. But I think we have to wait for at least 2-3 months to fig­ure out the last­ing im­pact of GST on work­ing cap­i­tal cy­cles of our cor­po­rates.”

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