 "Quick fixes won't solve growth problem")
Corporate credit growth by leading Indian banks has slowed down in the first half of the current fiscal to low single digits, as lenders are preferring high-rated corporates or public sector units to lend fresh funds.
The second-quarter results of the Indian banks, which are sitting on a mountain of bad debt, shows that they are cautious while giving out loans to stressed companies and sectors as they burnt their fingers in the past. Besides, bankers said very few companies are launching large projects which would require high capital from them.
Statistics collated of the top banks shows that SBI’s corporate credit grew by 2.78 per cent on a year-on-year basis, while ICICI Bank’s was up 2.9 per cent. Axis Bank, however, posted a 18 per cent growth in its corporate loan portfolio as the bank decided to re-start lending to corporates after cleaning up its books (see chart).
Arijit Basu, managing director of Commercial Clients Group of State Bank of India says SBI's corporate loans stood at Rs 7.7 trillion as of September 2019, comprising 40 per cent of its local advances, which will remain at the same level in future.
The bank has restricted new credit to PSU undertakings, investment-grade companies with viable projects and companies with strong cash-flow visibility. Due to this, the bank’s investment-grade credit portfolio has risen to 88 per cent as of September 2019 from 70 per cent as of March 2018, Basu told analysts in a conference call.
Further, the SBI has also implemented an early warning system to identify weak accounts that has even led to exit of few accounts by the banks in some cases.
Top officials of ICICI Bank said it is growing its corporate credit portfolio with focus on granularity, transaction banking and improvement in the credit rating profile. ICICI Bank was holding a large bad loan portfolio and has taken several steps to clean up its books in the last one year.
Lower corporate lending by banks comes at a time when large corporates – especially in the infrastructure and energy companies are tapping the international markets to raise funds. Statistics collated by Business Standard Research Bureau shows that Indian companies raised $13.74 billion in the first 10 months of calendar 2019, as against $1.65 billion raised in the same period of last year.
Analysts are expecting the year-on-year (YoY) growth in bank credit to decelerate sharply to eight per cent to 8.5 per cent during the fiscal 2020 from 13.3 per cent during FY2019, following the decline in incremental credit in H1 FY2020.
“A shift of large borrowers such as NBFCs and housing finance companies (HFCs) to the banking system for their funding requirements, had boosted bank credit growth in FY2019. However, factors such as muted economic growth, lower working capital requirements of various borrowers, as well as risk aversion among lenders, have compressed incremental credit in the first half of current fiscal,” says Anil Gupta, Sector Head-Financial Sector Rating, of rating firm, ICRA.
