Mumbai Corporate credit growth hit a seven-year high in May, data from the Reserve Bank of India (RBI) showed, as companies tightened their capital expenditure plans and increased the use of working capital limits.
Loans to Micro, Small, Medium and Large Enterprises 31.6 trillion on May 20, up 8.7% from the year-ago period. On an individual basis, MSMEs saw better growth, on a lower basis. Credit to large industries grew by 1.9% as compared to a contraction of 3.1% in May 2021.
According to experts, this points to a slow but steady growth in demand for corporate loans, driven primarily by private capital expenditure growth for infrastructure projects. Moreover, a major part of the increased working capital demand is due to rising input costs.
“Usage of existing sanction limits and reappraising in certain sectors pushed the industry out of credit limits. 28-29 trillion during the last three years,” analysts at ICICI Securities said in a note to clients on July 2.
Analysts said improving consumer demand, increase in private capital expenditure, followed by increase in government spending could be the trigger for industry credit growth, which would be key to revive overall credit growth.
While business loans had a higher overall value than retail loans, lenders were increasingly relying on individual borrowers to grow their loan books as corporate credit growth stagnated over the years. However, in July 2021, total lending by individuals exceeded loans given to businesses for the first time. Since then, the retail books of banks have gained an edge over business loans. Loans to retail borrowers as on 20th May 34.7 trillion, up 16.4% from a year ago.
However, lenders expect corporate loans, which are gaining momentum, to grow even faster during this financial year, and are betting big on larger corporate loans to catalyze credit growth.
“Opportunities are also available in corporate, small and medium enterprises and international book,” said Dinesh Khara, chairman of State Bank of India (SBI) on July 1.
In March quarter, SBI’s corporate lending grew by 6.35% over last year 8.7 trillion. The bank’s credit growth is still being led by the retail segment which has expanded so far 10.02 trillion as of March 31. A section of experts said the large infrastructure capex by the government in the Union Budget for FY13 is expected to restart the private capex cycle, improving credit growth prospects.
Kotak Institutional Equities, however, said working capital demand is improving but remains weak. “Signs of capex are still not visible as the private sector is showing negligible increase in restrictions. While loans with ticket sizes of more have some traction 100 crore, the bulk of the growth is seen in the low ticket size segments, Kotak analysts said in a report on June 29.
In its Financial Stability Report, the RBI said that while corporate sales and profitability have increased, a sustainable start to the capex cycle remains elusive. It added that maximum revival in credit demand was witnessed in the second half of 2021-22 and the momentum has continued in FY23 so far.
“While personal credit continued to be a major component, credit demand from the industrial sector revived in 2020-21 as well as in the first half of 2021-22 after collapsing. A significant portion of the new industrial loans were extended in the form of working capital loans,” the RBI said.