Banks see business lending revive by March

MUMBAI : Lenders expect demand for business loans to rebound by March, as continued economic recovery requires capital spending to meet growing demand for goods and services.

State Bank of India (SBI), which sanctioned business loans worth ??$ 4.6 trillion, expects a large chunk of unused limits to be drawn by March, with demand increasing further thereafter.

“When it comes to business loan portfolios, this month we’ve seen decent demand, and if that continues we should be able to see decent numbers. Unused loans are expected to drop from the current 50% to 30-35%, ”SBI Chairman Dinesh Khara told reporters on November 3. As of September 30, the bank’s business loan portfolio stood at ??7.56 trillion, down 3.9% from the previous year.

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Weak

Demand for business loans has remained weak for several quarters, which analysts attribute to ongoing deleveraging.

Uncertainty about demand amid the pandemic has prompted many borrowers to dip into internal provisions for spending instead of going to banks.

As of September 24, loans to industries amounted to ??28.29 trillion, up 2.5% from the previous year. In contrast, loans to individuals increased by 12.1% over the same period to reach ??29.18 trillion, becoming a major contributor to overall credit growth.

“We have good visibility of the growth on the business lending side, but we’ll have to wait for businesses to come back with their application,” Khara said.

However, demand from large companies will not come entirely in the form of working capital loans or term loans, but also through market instruments such as bonds.

For example, while SBI’s total loan portfolio was ??25.3 trillion at the end of the September quarter, including its investments in commercial paper and corporate bonds, would bring it to ??27.4 trillion.

Private sector lenders are also betting on restarting the investment cycle in the coming months.

Rajiv Anand, deputy managing director of Axis Bank, said the investment cycle has bottomed out, adding that while there probably would have been a stronger cycle at this point, the second wave of covid-19 and the likelihood of a third impacted him.

“But I think what’s for sure is that the capital spending cycle has bottomed out, and we should definitely see it begin. There are various initiatives; national monetization program, production-linked incentive programs (PLI). We are seeing low levels of investment in chemicals, steel, cement, etc. Part of this is also funded by internal regularizations, ”he told analysts on October 26.

Anand added that companies continue to deleverage and use their own cash flow to support capital spending.

To be sure, bankers have been cautious about corporate lending after years of bad debt accumulation and prolonged cleanup.

As we see a liquidity-fueled interest rate war, some banks have decided to steer clear of the crowds, opting for higher margins instead.

The September quarter of fiscal 2022 was thus marked by retail businesses and small businesses leading credit demand as business customers waited.

As the bankers have pointed out, the pace of the economic recovery will determine how long it will take for the cycle of capital spending and private spending to pick up again.

At the same time, an October 21 Mint report cited Morgan Stanley as saying India’s capital expenditure to gross domestic product (GDP) ratio is expected to increase by six percentage points between FY21 and FY1. exercise 26.

Morgan Stanley expects India’s GDP growth to average 7% in fiscal years 23-26.

He sees India entering a new cycle of profit, which could result in compound profits of 20-25% per year over the next four years.

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