Deployment of bank credit in large industries saw a late surge in the final quarter of 2021, according to Reserve Bank of India (RBI) data and commentary from bankers. While corporates continue to borrow from the markets as they emerge from a phase of deleveraging, banks are positioning themselves to offer financing through a mix of instruments in the new year 2022.
Growth in credit to large industries moved into positive territory, rising 0.5% year-on-year (y-o-y) in October 2021, for the first time last year, according to the latest sectoral data from RBI. During October 2020, it had shrunk 1.8%. Executives across banks say that they are seeing demand coming back as the uncertainty around successive waves of the pandemic wanes, aided by government schemes to support manufacturing.
State Bank of India (SBI) has pegged the extent of deleveraging over the last few years at Rs 2 lakh crore.
Bankers say that the process is now reversing. Rajiv Anand, deputy managing director (designate), Axis Bank, said last month that companies are now more keen to borrow. “That confidence is now back and we do believe that private capex demand, as we look at 2022-23, will be much stronger than what we’ve seen over the last three to five years,” he said.
According to Anand, there is fairly strong capex in renewables and around production-linked incentive schemes in electronics and solar cells and others. There is also good demand in the segments of roads, ports, speciality chemicals, data centres.
Even as banks cater to the balance-sheet requirements of corporates, they are working to keep up with newer trends in wholesale financing. Ashwani Bhatia, managing director, SBI, said recently that in the process, banks are de-risking their balance sheets. “Whether the money moves to the bonds or to the insurance companies or to the long-term credit funds, it’s actually good for the banking system because the risk doesn’t have to reside over here,” Bhatia said.
Corporates now come forward to discuss the options for financing before them and SBI tries to determine the appropriate mix of instruments that would help reduce blended costs for the borrowers, Bhatia said. During its Q2FY22 post-results call, the SBI management had said it had unavailed working capital limits and undisbursed term loans worth Rs 4.5 lakh crore. Once capacity utilisation improves in Q3 and Q4, the bank expects a pick-up in corporate credit.
A recent working paper by RBI executives said that there is yet room for Indian companies to borrow. “The current level of leverage of around 48%, as per latest available data (2018-19), suggests that there exists a further space for corporate borrowing which will lead to higher investment in a scenario where macro-economy is conducive and better financial conditions prevail in a scenario where macro-economy is conducive,” the paper said.