BackBanks see corporate lending revive by March
Continued recovery in economic activities to boost demand for loansSBI, which has sanctioned corporate loans worth ₹4.6 tn, expects a large portion of the unutilized limits to be drawn by March, with demand rising further after that
PremiumMUMBAI : Lenders are expecting demand for corporate loans to rebound by March, as the continued revival in economic activities calls for capital expenditure to meet the rising demand for goods and services.
State Bank of India (SBI), which has sanctioned corporate loans worth ₹4.6 trillion, expects a large portion of the unutilized limits to be drawn by March, with demand rising further after that.
“When it comes to the corporate loan portfolios, this month we have seen decent demand, and if that continues, we should be in a position to see decent numbers. The unutilized loans are expected to decline from the current 50% to 30-35%," SBI chairman Dinesh Khara told reporters on 3 November. As of 30 September, the bank’s corporate loan book stood at ₹7.56 trillion, down 3.9% from a year earlier.
Corporate loan demand has remained muted for several quarters now, which analysts have attributed to the ongoing deleveraging.
Uncertainty about demand amid the pandemic has prompted many borrowers to tap into internal accruals for expenses instead of approaching banks.
As of 24 September, loans to industries stood at ₹28.29 trillion, up 2.5% from a year earlier. In contrast, retail loans grew 12.1% during the same period to ₹29.18 trillion, turning a major contributor to overall credit growth.
“We have good visibility of growth on the corporate loans side but will have to wait for corporates to come back with their demand," Khara said.
However, demand from large corporations will not be entirely in the form of working capital loans or term loans but also through market instruments such as bonds.
For instance, while SBI’s total loan book stood at ₹25.3 trillion at the end of the September quarter, including its investments in commercial papers and corporate bonds would take it to ₹27.4 trillion.
Private sector lenders, too, are betting on the capex cycle restarting in the next few months.
Rajiv Anand, deputy managing director at Axis Bank, said that the capex cycle has bottomed out, adding that while there would have probably been a stronger cycle at this point in time, the second covid-19 wave and the probability of a third, have impacted it.
“But I think what one is certain is that the capex cycle has bottomed out, and we should certainly see that begin to kick in. There are various initiatives; national monetization programme, production-linked incentive (PLI) schemes. We are seeing small levels of capex in chemicals, steel, cement and so on and so forth. Some of that is also being funded by internal accruals," he told analysts on 26 October.
Anand added that companies are still deleveraging and using their own cash flows to support capex.
To be sure, bankers have been cautious about corporate loans after years of mounting bad loans and a protracted clean-up.
While a liquidity-fuelled interest rate war is being seen, some banks have decided to stay away from the crowd, going for stronger margins instead.
The September quarter of fiscal 2022 was thus marked by retail and small businesses leading credit demand as corporate clients waited.
As bankers have pointed out, the pace of economic recovery will determine how long it will take for the capex and private spending cycle to restart.
Meanwhile, a Mint report on 21 October cited Morgan Stanley as saying that India’s capex to gross domestic product (GDP) ratio is expected to rise by six percentage points between FY21 and FY26.
Morgan Stanley expects India’s GDP growth to average 7% in FY23-26.
It sees India entering a new profit cycle, which may result in earnings compounding at 20-25% per annum for the next four years.
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