Credit growth at record low as 1,000 firms borrowed Rs1 trillion less in Fy17
One-third of the contraction in bank credit growth was led by just 10 firms which cumulatively availed of Rs33,571 crore less in 2016-17 over the previous year, says SBI Research
Mumbai: The record low bank credit growth of 5.1% in the 2016-17 fiscal year was led by the top 1,000 listed corporates which saw their net loan outstanding decline by a whopping Rs1 trillion in the reporting year, said a report.
One-third of this massive contraction was led by just 10 companies, which cumulatively availed of Rs33,571 crore less in the year over the previous year, according to the report by SBI (State Bank of India) Research.
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According to SBI chief economic adviser Soumya Kanti Ghosh, who penned the report, this could either be perceived as lower debt utilisation levels or prepayment through internal accruals or through asset sale. Other reasons could be qualified institutional placement (QIP) or private equity participation.
The Reserve Bank of India (RBI) data showed that bank credit inched up by a tad 5.1% in the year to March 2017, which was the lowest since 1951 when it had grown by a paltry 1.8% which could be attributed rise in bond issuance and cheaper non-bank fund sources coupled with overall credit aversion in the economy as well as non-investment by the private sector in capacity expansion.
However, taken as a whole, as percent annual results of about 3,000 listed entities for 2016-17, there was an 8% increase on a CAGR (compound annual growth rate) basis in loan funds outstanding over 2014-15. The outstanding loan funds as of 2014-15 stood at Rs22.8 trillion, which increased to Rs26.5 trillion in 2016-17. This was Rs24.2 trillion in 2015-16.
However, many top notch corporates reported contraction in loan funds outstanding in 2016-17 over the previous year. “About 1,000 entities in aggregate (excluding banks and finance companies) reported decline in loan funds to the extent of Rs1 trillion crore,” said Ghosh.
Debt contraction can either be through repayments, equity conversion or restructuring he says adding “top ten entities saw a decline of about Rs33,000 crore.”
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Some of the best known companies that have lowered loan funds include Gail India (-48%), Piramal Enterprises (-37%), National Fertilizers (-37%), L&T (-24%) Hindalco (-20%) and Jet Airways (-22%). Cumulatively, these companies alone borrowed Rs20,000 crore less, said the report.
From a sectoral point of view, this came in amid a double digit annual growth in Ebidta (earnings before interest, taxes, depreciation and amortization) by most of the top 10 sectors depicting all round growth in top-line, midline and bottom-line.
About 1,000 entities (excluding banks and finance) saw a steep Rs1,00,710 crore decline in loan funds, while the top ten entities’ loan funds decline by Rs33,571 crore which is 33% of the aggregate reduction in loan funds for all.
Hinting at a continuation of the same deleveraging trend in the times to come, the report points to the Tata Group identifying non-core businesses for divestment. The group is in the process of selling drug discovery services company Advinus Therapeutics. Its fertiliser business may also be up for sale along with Tata Ceramics, Tata Business Support Services, Tata Asset Management and Tata AutoComp Systems.
Other reasons for lower loan demand may come from operational and financial restructuring, repayments, equity conversion by lenders etc, said the report.