Anticipate a shift in credit growth composition towards manufacturing and infrastructure : Ankur Khurana, Co-head, Corporate Banking, Standard Chartered 

Anticipate a shift in credit growth composition towards manufacturing and infrastructure : Ankur Khurana, Co-head, Corporate Banking, Standard Chartered

With India’s GDP likely to grow at an impressive 8 percent, credit demand is expected to grow in tandem, driven by an anticipated rise in private capex and domestic consumption. In an interview, Ankur Khurana, Co-head, Corporate, Commercial and Institutional Banking, Standard Chartered Bank India, outlined the key trends defining the current financial landscape and how Standard Chartered Bank, which has one of the largest loan portfolio in India among foreign banks, is looking to play each one of these.

Edited excerpts:

What are the defining trends in domestic corporate banking that you are witnessing?

In 2023 there was notable stability in India's macroeconomic environment, contrasting with global instability stemming from factors like inflation, interest rates, and geopolitical crises. This put India in the spotlight for multinational companies (with significant foreign direct investment commitments, particularly in greenfield projects) and continued interest from real money investors including financial sponsors. However, debt capital market activities, especially in dollar-denominated markets, reduced significantly due to interest rate dynamics. Looking ahead, I anticipate a shift in credit growth composition towards manufacturing and infrastructure sectors, driven by factors such as post-election confidence, ‘China plus one’ strategy, and ongoing investment in energy transition.

Do you foresee a broader distribution of corporate credit outside of top conglomerates going ahead?

Yes, I anticipate mid-tier companies benefiting from the ripple effect of large corporations' capex investments. While top conglomerates may have ample free cash flow, mid-tier firms will likely seek external sources of capital for their capex and working capital requirements. However, corporates are now more cautious about leverage, and banks are also mindful of lending discipline, preventing a return to pre-2015 leverage levels.

How do you expect the dynamics of the dollar capital market to evolve given changing interest rate scenarios?

Despite the expectation of a fall in dollar interest rates, challenges such as withholding tax implications persist, limiting the attractiveness of dollar borrowing. However, I anticipate increased activity in the dollar capital market this year, especially for investment-grade issuers and select corporates looking for long-term funding and rate locking opportunities. We have seen early signs of this in January with issuers like SBI and Shriram Capital accessing the US$ capital market.

What are your thoughts on private credit markets, particularly in terms of secondary market liquidity and the outlook for new transactions?

While secondary market liquidity in private credit remains limited due to investors holding onto their positions, the market's relevance persists, especially for real estate, startups, and event driven situations. Private credit transactions are valued for their ability to bridge short-term funding mismatches and facilitate capital deployment, particularly in sectors like real estate infrastructure and other capex intensive sectors. In the last 12 months Standard Chartered Bank led two of the largest private credit deals in the market and we continue to remain bullish about the opportunities in this segment.

Which sectors do you believe will attract significant banking capital in the near future?

Manufacturing, infrastructure, renewable energy and ESG-related industries are poised to attract banking capital due to their capital intensive nature and growth potential. Additionally, sectors experiencing consolidation or seeking scale through acquisitions may also see increased banking participation. For Standard Chartered, Sustainable Finance continues to be a key focus, where India is the largest contributor to Sustainable Finance income for the group, and the business will focus on expanding into Transition Finance.

How do you evaluate risk in sectors with uncertain cash flows, such as emerging technologies and transition focused industries like green hydrogen?

Evaluating risk in sectors with uncertain cash flows requires a combination of sector-specific analysis, government policy assessment, and collaboration with industry stakeholders. While cash flow visibility may be limited in emerging sectors, government interventions and policy frameworks can provide some level of certainty, mitigating investment risks to a certain extent.

With excess liquidity in the market, how do you plan to deploy promoter equity and navigate the current valuation landscape?

Promoter equity deployment will involve a mix of financing and advisory services, focusing on structuring transactions, facilitating mergers and acquisitions, and attracting financial sponsors. Given the competitive valuation landscape, a strategic approach to deal making, particularly in sectors undergoing transition or experiencing consolidation, will be crucial.

Considering global trends such as reduced exposure to China, how do you anticipate M&A activity and investment flows in India?

Despite global uncertainties, India's stable economic environment continues to attract investment interest. While valuation challenges exist, particularly in tech and other high-growth sectors, India remains a favourable destination for both domestic and foreign investors. M&A activity is expected to remain robust, with a focus on domestic consolidation, strategic acquisitions, and investment in emerging sectors like renewable energy and tech.