Wait for biz loan pickup could get longer on limited capex

Banks have been awaiting their turn to finance Indian corporates—at least the stronger businesses which, despite managing to negotiate a finer pricing, are seen as more creditworthy with strong parental support.

Although banks are more willing than before to open the lending pipeline to corporates, fresh projects are few and far between.

Bank loans to industries grew 7.1% year-on-year (y-o-y) in September as compared with a 30.4% growth in retail loans on a larger base, as per data from the Reserve Bank of India (RBI). Bank credit to large industries showed a growth of 6.1% in the same period. Although the merger of erstwhile Housing Development Finance Corp. (HDFC) with HDFC Bank aided the retail numbers, individual loans would have grown 18.2% without it.

Dinesh Khara, chairman, State Bank of India (SBI) is hopeful of corporate loan growth in the coming quarters and has seen some signs of improvement in utilization of term-loans and working capital that have already been sanctioned.

While SBI’s total loan book grew 12.4% y-o-y in the three months through September, corporate loans increased 6.6%.

“We have got undisbursed portions of some sanctioned (but) unavailed limits of term-loans. In term-loans, we have seen that availment has improved by almost about 100 basis points in this quarter as compared to the previous quarter," Khara told analysts on 4 November.

Meanwhile, an analysis of data on gross fixed assets of companies by Bank of Baroda showed that while the stock of fixed assets grew 3.6% during the April-September period and was higher than the same period last year, it was still subdued. The growth was 7.9% on a y-o-y basis.

The analysis considered the gross fixed assets and capital work in progress of 1,420 companies as an indicator of capital expenditure (capex).

Industries where fixed assets grew faster than the overall y-o-y growth rate included infrastructure at 18.3%, crude oil (14.1%), iron and steel (8.9%), capital goods (8.6%) and retail (19%).

On the other hand, power, telecom, automobile and ancillaries, healthcare and textile were among those where growth lagged the sample average.

“Whether you look at bank credit or the data on corporate bond issuances, the picture is not too impressive from the corporate investment point of view. Bank credit has largely been retail in nature not towards large manufacturing and corporate bond markets are being dominated by financial services firms," said Madan Sabnavis, chief economist, Bank of Baroda.

While bankers are hopeful of a pick-up, Sabnavis said, corporate credit demand is not broad-based and for growth to pick up such demand should be more secular.

India also saw a decline in the value of new project announcements at ₹1.5 trillion in the September quarter, as against ₹6.7 trillion in the previous three months and ₹5.3 trillion in the September quarter of FY23, showed data from the Centre for Monitoring Indian Economy (CMIE).