Growth in corporate debt remains weak

Despite improving economic conditions, corporate debt and bank credit to the corporate sector remains weak, in a possible indication that a full recovery in the economy may still be some time away.

A recent report by Motilal Oswal has estimated that while the growth in household debt has picked up, corporate debt has remained weak. Meanwhile, data by the Reserve Bank of India reveal that credit to industry contracted by 1.3 per cent in January 2021 as compared to 2.5 per cent growth in January 2020.

“India’s non-financial sector (NFS) debt grew 10.3 per cent year on year in the third quarter this fiscal, marking the highest growth in six quarters, higher than the record low of 8 per cent in fourth quarter of 2019-20,” said the Motilal Oswal report titled Ecoscope.

Outstanding non-financial sector debt stood at ₹3.38 lakh crore, which was a fresh high of 174.4 per cent of the GDP in the third quarter this fiscal, it further noted.

Within non-financial sector, general government debt, inclusive of Centre and States, grew at a decadal high of 16.3 per cent annually.

However, non-government and non-financial (NGNF) debt grew by a mere five per cent in the third quarter of the fiscal. This was just marginally better than the record low growth of 4.6 per cent in the second quarter this fiscal.

Within the NGNF sector, household debt grew at a decent 9.6 per cent annually in the third quarter of the fiscal versus 8.7 per cent in the second quarter.

“Such weak debt growth confirms the uptick in economic activity remains subdued. Coupled with our argument that Covid-19 may adversely impact India’s household income, this implies that a strong recovery looks highly ambitious,” the report said.

Sectoral deployment of credit

RBI data showed that bank credit to industry remained in contraction in January 2021. This was “mainly due to contraction in credit to large industries by 2.5 per cent (2.8 per cent growth in January 2020),” the RBI said.

This despite the fact that on a year-on-year basis, non-food bank credit growth stood at 5.7 per cent in January 2021 as compared to 8.5 per cent in January 2020.

Credit to medium industries registered a robust growth of 19.1 per cent in January 2021 as compared to 2.8 per cent a year ago and credit to micro and small industries registered a growth of 0.9 per cent in January 2021 as compared to 0.5 per cent a year ago.

“Industry credit continues to be the weakest link dragging the overall growth – still down 4.3 per cent year to date. However, downward trajectory in industry credit (particularly large industries) has been arrested since past three quarters and there is a marginal month on month uptick since November,” noted a recent report by ICICI Securities.

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