Large borrowers return to bank fold, help credit growth

Large corporates have shifted their focus on banks to fulfil their fund requirements instead of raising funds overseas or from the local bond market. This may help credit growth to sustain at over 14% level for the current fiscal, the country’s top bankers said.
There has been renewed demand for working capital loans as well as higher opportunities to invest in new capacity, they said.

The Reserve Bank of India data showed that bank loans taken by large corporations grew 3.3% year-on-year in June, which is the highest growth since the outbreak of Covid-19. Same time last year, large corporate loans shrank by 3.4% as compared to what it was in the year back.

“Not only is credit demand picking up, customers, particularly large corporates, are shifting to banks for their credit requirement, as opposed to other forms of borrowing,” Federal Bank managing director Shyam Srinivasan said. “This has been happening over the last six/seven months. And that's one of the reasons why credit is growing reasonably fast.”

Bank credit recorded 14.5% year-on-year growth at the end of July, well supported by demand from large and medium corporations. Large corporate loans grew Rs 76464 crore incrementally in the past one year to Rs 23.93 lakh crore while mid-sized corporate loans rose Rs 71115 crore to Rs 2.21 lakh crore, latest data released by RBI showed.

The credit demand from large corporations is growing, said Canara Bank managing director LV Prabhakar. “The bank credit has become competitive for large borrowers given the hardening of rates in the debt market,” he said.

“In an increasing interest rate scenario, corporates are looking for long-term borrowing instead of short-term loans and this has helped banks improve credit growth,” said Bank of Maharashtra managing director AS Rajeev.

There are a few other issues that are fueling corporate credit demand, explained Federal Bank’s Srinivasan. “Capacity utilisation is beginning to taper off, this means corporates need to top up. So people are looking at reinvestment options. There is also a natural inflation-led growth. Then, we are operating at a reasonably low base. All these are creating a reasonable amount of credit momentum and banks that have clean balance sheets and risk appetite are able to fulfil this,” he said.

This is in sync with the rising factory output, which grew 12.7% year-on-year in the June quarter. In June, the electricity and manufacturing sectors clocked annual growth of 16.4% and 12.5%, respectively. The mining sector grew by 7.5% in the same period. “The double-digit is indicative of industrial recovery despite global headwinds and uncertainties,” India Ratings & Research said.