Corporate credit offtake rises in FY19, but no material change seen

Corporate credit offtake increased significantly in the financial year ended March 31, 2019 compared to the previous year, going by data available with major banks. Yet, the situation on the ground has not showed a commensurate change.

On the contrary, factory output has contracted and early fourth quarter results of India Inc do not suggest an increase in the demand for goods or services.

State Bank of India (SBI) recorded a 14.83 per cent increase in corporate credit growth in FY19 compared to 2.18 per cent the previous fiscal. Advances rose to ₹8,51,638 crore (₹7,41,668 crore).

SBI has been stepping up corporate lending in the recent past, setting up an exclusive corporate advances group and a corporate clients group to address the needs of different categories.

As per the strategy outlined in the analyst presentation for the year on Friday, post its fourth quarter results, SBI plans to reach out to new segments look for product penetration across high priority relationships.

ICICI Bank, too, said that it witnessed ‘continued’ growth in its domestic corporate loan portfolio at 14 per cent year-on-year (YoY). The data of many public sector banks also reveals a similar picture.

Not just of individual players, even the RBI’s data on industry-wise deployment of bank credit presents an encouraging picture.

While total credit to industry inched up 6.9 per cent, the highest Y-o-Y increase was under the broad category of ‘infrastructure lending’ at 18.5 per cent. Within this, credit to telecommunications was up 36 per cent.

Chemicals and chemical products, engineering, and cement and cement products were the other categories that showed increased bank credit offtake.

Manufacturing growth

While higher corporate credit offtake should lead to higher investments and an increase in production/job creation, the latest Central Statistics Office data on the manufacturing sector shows a negative growth.

Factory output, as measured by the Index of Industrial Production (IIP), contracted by 0.1 per cent in March 2019 against a growth of 5.3 per cent in March 2018; this was the lowest since June 2017, when it contracted by 0.3 per cent.

Net sales of India Inc, which had grown at a brisk 26-27 per cent in the September and December quarters, slowed to 16 per cent in the last quarter of the fiscal year.

Uneven disbursal

This is possibly because of uneven disbursal of loans and the lag-effect in the transmission of bank loans converting to investments.

Devendra Pant, Chief Economist, India Ratings and Research (Fitch Group), pointed out that bank lending is one of the key sources of funding for businesses, but other factors also determine growth. “We also need to take into consideration factors such as lag-effect and nature of demand in this regard,” he added.

The health of a few businesses is still a matter of concern for banks when it comes to lending as beverages and tobacco, textiles, basic metals and metal products, gems and jewellery showed a dip in offtake of loans.

With the RBI softening its monetary policy and expected to cut rates for a third consecutive time next month, the investment sentiment among corporates might improve in the short to medium term.

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