The Goods and Services Tax (GST) may have made banking services more expensive, but lenders believe that the single producer levy creating a common market across India would boost credit growth.

With detailed information on taxes and businesses now available in an electronic format, bankers believe SME and self-employed portfolio may see faster credit expansion. These are traditionally the segments banks have shied away from. However, they believe once they have one full cycle of data, credit growth in these segments will accelerate by FY19.

“What GST will provide us is that for many of these smaller companies, we will have data. So, our ability to understand these businesses, and therefore, lend to them will improve dramatically,” said Rajiv Anand, ED, Axis bank.

“We tend to underestimate the ability of businesses to change as circumstances change and many of these businesses will change, given the fact that it has become much more expensive to do business in cash,” he added.

According to central bank data, growth in loans to individuals increased 13.7 per cent y-o-y in May, compared to 19.1 per cent in the same month of 2016. Retail loans have risen in the mid-to-late teens after hitting a bottom of 11 per cent witnessed after demonetisation. Credit to the industry continued to fall for eighth straight month in May, and increased a little over 2 per cent. Loans to micro and small industries were the biggest disappointment, which just managed to report a 0.1 per cent growth.

India ushered in the GST on July 1 that promises a unifying tax and replaces a multitude of taxes, including central taxes such as service tax and excise duties, and state taxes, such as octroi, entry tax, VAT and so on. In case of the banking industry, while service tax was applicable on almost all banking services, now it is going to be absorbed in the GST. Hence, the rate of the levy has gone up from 15 per cent to 18 per cent.

Source: Economic Times