BackCorporate credit growth hits 7-year high: RBI data
Loans to micro, small, medium and large enterprises stood at ₹31.6 trillion as on 20 May
PremiumMUMBAI : Corporate credit growth hit a seven-year high in May with companies firming up their capital expenditure plans and increasing utilization of working capital limits, showed Reserve Bank of India (RBI) data.
Loans to micro, small, medium and large enterprises stood at ₹31.6 trillion as on 20 May, up 8.7% from the year-ago period. On a segregated basis, MSMEs saw better growth, albeit on a low base. Loans to large industries grew 1.9%, compared to a 3.1% contraction in May 2021.
According to experts, this points to a slow but steady increase in demand for corporate loans, fuelled by private capital expenditure growth, primarily for infrastructure projects. Besides, a large portion of the increased working capital demand is due to rising input costs.
“Utilization of existing sanction limits and re-leveraging in a few sectors led to industry credit break out of the range of ₹28-29 trillion during the past three years," analysts at ICICI Securities said in a note to clients on 2 July.
Revival in consumer demand, rise in private capex, followed by a rise in government spending could be triggers for industry credit growth, which will be key for reviving overall credit growth, the analysts added.
While the aggregate value of business loans was higher compared to retail loans, lenders were increasingly becoming dependent on individual borrowers to grow their loan books as corporate loan growth had stagnated over the years. However, in July 2021, aggregate borrowings by individuals exceeded loans to businesses for the first time. Ever since, the retail books of banks have had an edge over business loans. As on 20 May, loans to retail borrowers stood at ₹34.7 trillion, up 16.4% from the year ago.
Lenders, however, expect corporate loans, that have been picking up pace, to grow even faster during this financial year, and are betting big on large corporate loans to catalyse credit growth.
“Opportunities are available in corporate, small and medium enterprises and also in the international book," said Dinesh Khara, chairman, State Bank of India (SBI), on 1 July.
In the March quarter, SBI’s corporate loans grew 6.35% over the previous year to ₹8.7 trillion. The bank’s credit growth is still being led by the retail segment which has now expanded to ₹10.02 trillion as on 31 March. That said, the large infrastructure capex push by the government in the Union budget for FY23 is expected to restart the private capex cycle, improving loan growth prospects, said a section of experts.
However, Kotak Institutional Equities said demand for working capital is improving but remains weak. “Signs of capex are still not visible as the private sector is showing negligible growth in sanctions. While there is some traction in loans with ticket size of over ₹100 crore, the bulk of the growth is seen in lower ticket size segments," Kotak analysts said in a report on 29 June.
In its Financial Stability Report, RBI said while corporate sales and profitability have risen, a durable commencement of the capex cycle remains elusive. The maximum revival in credit demand was seen in the second half of 2021-22 and the momentum has so far continued in FY23, it added.
“While personal loans remained a dominant component, credit demand from the industrial sector revived after collapsing in 2020-21 as well as in the first half of 2021-22. A significant portion of new industrial loans was extended as working capital loans," RBI said.
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