We could be at the beginning of a multi-year credit cycle: Vinay Sharma

The credit offtake data seems to be picking up and I wonder why that is happening? Is it because of a high working capital requirement because inflation has gone higher or has the new capex cycle that we have been waiting for started?
There are several reasons for that. It is difficult to pinpoint what is the exact reason for credit pickup. One, easy optical reason is obviously that the base effect last year at this point of time offtake was very poor. Optically it looks much better.

But having said that, we have been sanguine on credit growth for quite some time and it looks like pieces of the puzzle are now falling into place. For example, inflation benefits credit growth to a certain extent because working capital requirements go higher.

Similarly, retail credit in India has always been growing in mid-teens plus/minus here and there depending on the subsectors you are talking about. Retail credit seems to have come in full force and the Covid effect is behind us. Some of the smaller industries and SME, MSMEs took the brunt of GST and demonetisation from 2017-18 onwards. We think that effect is behind us and now they are also back to their normal self and large industries are showing signs of recovery after a long time.

We think these large Indian corporates were practically in a deleveraging phase from 2015 to 2020. There are signs that that phase is now behind us and green shoots for private capex are emerging and the large corporates have started to conceptualise projects and maybe started working on some of them. It is a mix of all of these that is leading to credit growth. But we believe this might just be starting. Credit cycles generally go for multi-years and therefore this could be beginning of a multi-year cycle.