MUMBAI : Lenders expect demand for corporate loans to rebound by March as the continued recovery in economic activity requires investment to meet growing demand for goods and services.
State Bank of India (SBI) providing corporate loans worth. has sanctioned â¹4.6 trillion, expects a majority of the unused limits to be drawn by March and demand for that will continue to grow.
âWhen it comes to corporate loan portfolios, we’ve seen decent demand this month and if that continues we should be able to see decent numbers. The unused loans are expected to decrease from the current 50% to 30-35%, âSBI chairman Dinesh Khara told reporters on November 3rd â¹7.56 trillion euros, 3.9% less than in the previous year.
Demand for corporate loans has been subdued for several quarters, which analysts attribute to ongoing deleveraging.
Uncertainty about demand amid the pandemic has led many borrowers to use internal provisions for spending instead of turning to banks.
Industry credits as of September 24th â¹28.29 trillion, 2.5% more than last year. In contrast, retail lending rose 12.1% over the same period â¹29.18 trillion which is a major contributor to overall credit growth.
“We have good visibility of growth on the corporate lending side, but we will have to wait for companies to come back with their demand,” said Khara.
However, the demand from large companies will not come exclusively in the form of working capital loans or term loans, but also through market instruments such as bonds.
For example, while SBI’s entire loan book is at â¹It would be $ 25.3 trillion at the end of the September quarter, including investments in commercial paper and corporate bonds â¹27.4 trillion.
Private lenders are also betting that the investment cycle will start again in the next few months.
Rajiv Anand, deputy general manager of Axis Bank, said the investment cycle has bottomed out, adding that there was likely a stronger cycle at that point, but the second wave of Covid-19 and the likelihood of a third have influenced.
âBut I think what is certain is that the investment cycle has bottomed out and we should definitely see this begin. There are different initiatives; national monetization program, production-linked incentive systems (PLI). We see low capital expenditures in chemicals, steel, cement, etc. and so on. Part of it is also financed by internal provisions, “he told analysts on October 26th.
Anand added that companies are still reducing debt and using their own cash flows to support the investment.
Of course, after years of bad credit accumulation and lengthy cleanups, bankers have been wary of corporate loans.
While a liquidity-fueled interest rate war can be observed, some banks have chosen to stay away from the crowd and bet on higher margins instead.
The September quarter of fiscal 2022 was therefore dominated by the leading demand for credit from private customers and small businesses, while corporate customers waited.
As bankers have pointed out, the pace of economic recovery will determine how long it will take to restart the investment cycle and the private spending cycle.
Meanwhile, an October 21 Mint report quoted Morgan Stanley as saying that India’s capital expenditure-to-gross domestic product (GDP) ratio is projected to increase six percentage points between FY21 and FY26.
Morgan Stanley expects India’s GDP growth to average 7% in FY23-26.
India is entering a new earnings cycle that could result in earnings growth of 20-25% per year over the next four years.
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