India’s pick up in capex cycle positive for banking sector

However, during those times the credit growth was dismal and was rather at a multi-year low, and deposits growth became robust, as more & more people rushed to banks with deposits.

As a result, the banking sector did not perform well during those times. However, in the last 2 quarters, we have seen that credit growth has started picking up across the banking sector.

This also implies that various businesses are having a positive outlook on the economy going forward & they are comfortable with borrowing money for new projects as well as for the expansion of capacities.

Moreover, in Budget FY23, the government stepped up the capital expenditure by 35.4% to Rs 7.50 lakh crore for 2022-23 from the previous Rs 5.54 lakh crore. This makes it 2.9% of the GDP.

This measure was taken to support the development for which heavy capital expenditure is required.

This has led to kickstarting a new CAPEX cycle in India. This new CAPEX cycle is also positive from the perspective of future credit growth for India. Robust credit growth is the key parameter for the banking sector to do well.

Another key factor for the smooth running of the banking sector is controlled non-performing asset levels in the banking sector.

In the last many quarters, we have seen that all banks in India have taken conscious efforts to reduce their gross & net NPAs.

In the results announced so far for Q2 FY23, we have seen the trend of NPAs reducing for large as well as small banks in India.

The third key factor for the success of the banking sector is the use of efficient technology. During Covid times most Indians learned to use banking services without visiting bank branches with the help of technology.

This has helped banks offer more and more of their products with online platforms & control their manpower costs despite a higher volume of transactions.

India is an agrarian economy. The economy had sufficient rainfall, though slightly higher than averages. This bodes well for the economy, businesses and for the banking sector as with better crops, there are less chances of failure of agri-loans.

With all the above factors, we have seen the banking sector doing well in the recent past.

However, since we are amid the new capex cycle, and all the other important ingredients for the growth of the banking sector are still positive, we are likely to see the positivity in the banking sector to continue.

Investors need to stay put in the sector to reap the benefits of this new cycle.

(The author is Whole Time Director and Head, Institutional Business at )

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