How affected have companies been by the slowdown in credit during the last quarter? The Reserve Bank of India’s macroeconomic and monetary developments review points out that non-food credit growth, adjusted for the fall in fertilizer and petroleum credit and bank investments in corporate paper, was Rs5,697 crore in April-June this year, against Rs30,361 crore last year. So banks lent to companies a mere 19% of what they lent between April and June last year.
Thankfully, flows from non-banks were much higher. For instance, net issuance of commercial paper subscribed by non-banks was Rs35,460 crore in April-June this year, against Rs25,104 crore for the same period last year. Similarly, gross private placements by non-financial entities went up to Rs29,135 crore in April-June this year, compared with Rs16,955 crore last year. Life Insurance Corp. of India’s gross investments in corporate debt, infrastructure and so on went up almost sixfold. In contrast, public issues by non-financial firms, net credit from housing finance companies and loans from NBFCs (non-banking finance companies) fell compared with the year-ago period. In fact, net credit from housing finance companies turned negative during the last quarter. The net result was that domestic flows from non-banks to the commercial sector during April-June were 83% of the year-ago period.
Fund flow from foreign sources during April-June, however, was 41% of the levels reached in the same period last year. Flows from ADR/GDR (American/global depository receipts) issues, foreign direct investment and short-term credit from abroad were all lower than last year. Inflows from external commercial borrowings/foreign currency convertible bonds were negative in the last quarter, on account of repayments.
The upshot is that the total flow of resources to the commercial sector, at Rs90,666 crore during April-June, was 57% of the amount available during the same period last year. That shows the huge contraction in total funding to the commercial sector this year.
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