Revival of investment cycle likely to be impacted as large corporates are liquidity rich, says RBI report

Corporates in the large segment are liquidity rich and thus could have limited liquidity requirements, according to the Reserve Bank of India's latest financial stability report (FSR). The report cautioned that this has implications for reviving the investment cycle given their significant share in wholesale credit.

The RBI made the aforementioned assessment after examining the characteristics of the balance sheets of two categories of corporates -- very large (aggregate debt above ₹5,000 crore) and large (aggregate debt between ₹100 crore and ₹5,000 crore) were compared.

In terms of the financial leverage metric, large corporates steadily deleveraged. With regard to corporates' balance sheet liquidity in both these cohorts, clearly large corporates were liquidity rich, with cash and marketable securities exceeding 40 per cent of on-balance sheet debt in each of the last four years, the report noted.

Very large accounts dominate wholesale credit growth

Credit growth in wholesale accounts (aggregate exposure of ₹5 crore and above) in the past two years was dominated by very large accounts (aggregate exposure above ₹5,000 crore), the report said.

The share of very large credit (greater than or equal to ₹5,000 crore) in scheduled commercial banks (SCBs) wholesale portfolio moved up from 30.7 per cent in March 2017 to 33.3 per cent in March 2018 to 38.7 per cent in March 2019.

The share of large credit (₹100 crore to ₹5,000 crore) declined from 48.8 per cent in March 2017 to 46.2 per cent in March 2018 to 42 per cent in March 2019.

The share of medium credit (₹25 crore to ₹100 crore) moved down from 9.8 per cent in March 2017 to 9.7 per cent in March 2018 to 8.9 per cent in March 2019.

The share of small credit (₹5 crore to ₹25 crore) moved up from 10.7 per cent in March 2017 to 10.9 per cent in March 2018 but declined to 10.4 per cent in March 2019.

Credit growth seen in financial firms

A broad split between financial and non-financial firms shows that credit growth in 2018-19 was dominated by financial firms (non-banking financial companies).

The disaggregated credit growth of very large borrowers in the financial sector jumped 47.5 per cent year-on-year (yoy) in March 2019 against 22.4 per cent in March 2018.

Within the very large financial firms category, credit growth for public sector undertakings (PSUs) soared 92.9 per cent yoy in March 2019 against 45.6 per cent in March 2018. Credit growth for private sector rose 39.5 per cent yoy against 19.1 per cent.

The disaggregated credit growth of very large borrowers in the non-financial sector rose 19.7 per cent yoy in March 2019 against 12.2 per cent in March 2018.

Within the very large non-financial firms category, credit growth for public sector undertakings (PSUs) declined to 43.7 per cent yoy in March 2019 against 57.9 per cent in March 2018. Credit for the private sector saw de-growth of 0.5 per cent yoy against a de-growth of 9.8 per cent.

The FSR said a more disaggregated analysis of very large credit exposures in terms of obligors shows that significant credit growth was driven by a relatively narrow set of firms (161 in March 2019 against 148 in March 2018).

Comparing March 2018 and March 2019, out of 148 and 161 firms, respectively, that formed the very large credit offtake, 126 firms were common, the report added.