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