The Hindu Business Line : Is it back to bank credit for cos?

Going by the latest figures released by the Reserve Bank of India, it appears that a number of them have been doing that. It indicates that gross bank credit in the system has surged by Rs 10,174 crore to Rs 8,77,408 crore, as on the fortnight ended June 25, 2004.

What is interesting is that while thesurge has been influenced by a growth of Rs 10,274 crore in non-food credit, food credit has registered a decline of Rs 100 crore. Analysts are divided in their opinion on what could be ascribed as a reason for this sudden surge in non-food credit. Some feel that there has been a genuine demand for credit emerging from small and medium-size corporates, who cannot afford to borrow from the market unlike their larger-AAA and AA-rated peers.

And then, there are the naysayers, who feel it is the usual "window dressing" on part of banks who want to meet their credit targets, before the end of the quarter.

Bankers are largely non-committal on the subject. While most have been willing to go on record, citing "signs" of pick-up, few are forthcoming on an industry-wise break-up. Ask any banker and he will broadly tell you that the demand for credit is emerging from the power, infrastructure and retail sectors.

Another view among analysts is that corporates are being slowly steered towards bank borrowings with a series of intended measures coupled with the changes in the dynamic global economic environment. In November last year, the RBI tightened the screws on External Commercial Borrowings, with the dual purpose of plugging excess dollar inflows and leaving limited avenues for corporate borrowings in the markets. This came as a dampener to a number of non-triple A-rated corporates who needed to raise funds, who have since been forced to look to banks for financing support, as there is not much demand for such corporate issuances even in the domestic debt market.

The latest and much talked about issue about the `transaction tax', which the Government has imposed even on debt deals, is also likely to make corporates turn to banks for their borrowings, as raising funds from the debt market will cease to be an attractive proposition, say analysts.

On the other hand, there is also a view, that apprehensions of a global hardening in interest rates may also in turn spur corporate credit-off take.

"A rise in interest rates will not only squeeze the rate differential advantage for overseas borrowings, but will also make it more expensive to raise funds in the domestic debt markets. Therefore, borrowers will have to go back to banks to raise funds," said an analyst.

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