Banks bet on private capex, NBFC growth to drive corporate credit FY24

With corporate credit growth having picked up momentum over the last 9-12 months, led by demand for refinance and working capital, private banks are betting on increase in private sector capex and healthy NBFC-led growth to drive demand for corporate credit going into FY24.

The pick in capex, reflected in the better capacity utilisation levels and some capacity expansion, led to accelerated growth in Q3 and Q4 of FY23, led by funding to manufacturing and infrastructure-led sectors such as iron and steel, telecom, PSUs, retail sectors, roads, gems and jewellery, power, commercial real estate, services and petroleum, bankers said.

“This is largely aided by the fact that many of them (corporates) are going ahead with the capex cycle because most of the sector or industries are at 75-85 per cent capacity utilisation,” Harsh Dugar, Wholesale Banking head at Federal Bank said in the earnings call.

“We do see a large amount of capex coming in and along with that heightened level of activity which will require more working capital requirements,” he added.

Government spending

Capex has so far been largely driven by government spending and initiatives such as ‘Make in India’ and PLI (production-linked incentive) Scheme. In addition to the trickle down impact from this accelerated government spending, there are also “early signs of some capex in the private sector”, ICICI Bank said.

Also read: Corporate credit ratio moderates in second half of FY23 on global inflation, slowdown

“There has been a recovery in corporate credit growth post the turn in the monetary environment and some shift from bond markets to banks. We are certainly seeing opportunities for lending in some of the sectors like NBFCs and real estate,” said ICICI Bank Group CFO Anindya Banerjee.

Competitive pricing

More conservative lenders such as Kotak Mahindra Bank and Axis Bank, which have flagged concerns regarding irrational and competitive pricing in wholesale lending, said pricing has been improving since Q4 leading to steady pick up in corporate credit.

Moreover, there are also early signs of capacity expansion, though few and limited, in a few sectors such as infrastructure, logistics and chemicals, KVS Manian, Whole Time Director at Kotak Bank told businessline.

“As the private investment that is being talked about in terms of adding capacity happens over the next few quarters, one could see growth there,” Manian said in the investor call, adding that the NBFC segment is seeing strong growth led by good capitalisation levels, pick-up in demand and healthy collections.

‘Strong uptick’

Axis Bank Deputy MD Rajiv Anand too said that while currently not all private capex is being funded by bank loans, given strong cash flows and low leverage levels of corporates, the bank is seeing “reasonably strong uptick in terms of private capex” and demand for credit should improve.

As such, the pipeline for corporate credit remains robust and the momentum is expected to continue in FY24, bankers said, adding that in the initial few months growth is likely to be led by credit demand from conglomerates as other large and mid-corporates catch up in terms of growth and capacity utilisation.

COMMENT NOW