Behind large numbers: When will corporate investment cycle fire up?

It will be some time before the corporate investment cycle fires up. 

The Reserve Bank of India’s (RBI) analysis of India Inc’s borrowing profile says the share of “very large accounts” (defined as exposures above Rs 5,000 crore), in bank’s corporate loan books moved up to 39 per cent in FY19, up from 33 per cent in FY18. Of this, the share of non-banking financial companies (including housing finance companies) — stood at 47.5 per cent, up sharply from 22.5 per cent during this period. 

A more granular analysis of FY19 and FY18 credit data shows that of the 161 and 148 firms which fall in the “very large accounts” category, 126 firms were common for both the years. Simply put — a small pool of borrowers guzzles the bulk of credit; of which financial firms have a higher share. As for corporates’ balance sheet liquidity, “large corporates”, defined as those which borrow between Rs 100 crore and Rs 5,000 crore, were flush with liquidity — cash and marketable securities exceeded 40 per cent of on-balance sheet debt in each of the last four years.

The central bank’s Financial Stability Report concludes “since corporates in the large segment are liquidity rich, this has implications for reviving the investment cycle given their significant share in wholesale credit”.