Corporate credit demand gains pace, showing signs of gathering steam

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Mumbai, Jul 26: The demand for credit from companies in the manufacturing and services sectors is moving up, in tandem with economic growth showing clear signs of gathering steam.
Senior executives with banks and finance companies said while working capital has a major share in this higher demand, corporates are also beginning to seek credit for creating new capacities and to finance acquisitions, thanks to insolvency proceedings.
Refinancing of older credit also has a significant share, they add.
“Corporate credit has picked up this fiscal (2018-19). Last fiscal (FY18), it was less than five per cent (growth), with a low base. We are seeing private banks leading with a higher share of the overall credit — some are recording 15-20 per cent corporate credit growth,” said Krishnan Sitaraman, senior director at CRISIL Ratings.
According to Reserve Bank (RBI) data for May, credit to the corporate sector in industry grew 1.4 per cent, against a contraction of 2.1 per cent in last year’s May. Credit to services grew more than five times to 21.9 per cent, against four per cent growth in May 2017.
All the private lenders that have announced their June results till date — including HDFC Bank, IndusInd Bank, RBL Bank and Federal Bank – said they saw corporate loan growth of over 20 per cent from the previous year’s quarter.
Ashutosh Khajuria, executive director at Federal Bank, said there was improvement in demand for term loans as capacities are getting created, both for expansion and new projects. Rising economic activity showed in the growth in the transportation and automobile ancillary segments. RBL Bank’s wholesale (to businesses) loans were 59 per cent of the total loan book. Most of these comprised working capital loans with a tenure less than two years. “We want to move towards a greater share of retail (to individuals) loans but both segments (corporate and retail) are showing strong growth,” said Vishwavir Ahuja, managing director and chief executive. He maintained that the bank would continue to have a greater share from the corporate segment for the next two to three years.
After the nationwide goods and services tax, there has been an increase in working capital requirements and inventory build-up in midsize corporates. This requires more financing and has, therefore, raised the amount of working capital financing.
As for change brought about by the drive to clean-up loan defaulters, bankers said they foresee better recoveries in the first list of 12 major accounts sent for resolution under the insolvency code. As some of these are steel companies, if steel prices improve with more demand, there could be higher recoveries.