Corporate loan growth signals business revival

After a long lull, corporate lending is witnessing a revival.

In recent years, loans to industries and businesses had been stalled due to macro-economic concerns and rising non-performing assets (NPAs).

However, the advances of some major banks indicate a perceptible change in approach to corporate lending.

For instance, the corporate loan portfolio of the State Bank of India, the country’s largest lender, grew 1.80 per cent in the year ended March 31, 2018, at ₹10.11-lakh crore, against ₹9.93 lakh crore in the year-ago period.

This figure includes advances extended to large, medium and small enterprises. Large corporate loans accounted for a major chunk of this at ₹4.11 lakh crore (₹3.41-lakh crore).

The increase in off-take is discernible when compared to the previous year. For SBI, the increase in large corporate loans for 2016-17 was ₹11,854 crore, a figure the lender beat by a large margin in FY18, when the figure stood at ₹69,901 crore.

While growth in mid-corporate loans was muted in 2016-17, it had gone up ₹86,825 crore in FY18. A few other banks too show a similar trend.

The improvement in lending is more pronounced between the quarters of December 2017 and March 2018 when lending to large corporates grew 16.38 per cent and that to mid-corporates rose 14.46 per cent.

Punjab National Bank, India’s second-largest bank, also clocked an increase in loans to large industry, as lending rose to ₹1.34-lakh crore (₹1.29-lakh crore), besides a 6.5 per cent increase in disbursement of funds to MSMEs. Similarly, Canara Bank’s corporate credit grew 2.99 per cent to ₹1.38-lakh crore.

According to a senior SBI official, there has been renewed focus on corporate lending in the banking sector even while the retail credit segment is still being seen as safe bet, especially by smaller banks.

SBI has also been revamping corporate credit structure and systems. It has been broadening its client base, focussing on new segments, creating commercial clients group under two Deputy Managing Directors, and increasing product penetration among high-priority relations.

The completion of the restructuring of assets by many banks and speedy resolution of NCLT cases and expected good performance by agriculture this year might drive demand for corporate credit in the days to come.

Green shoots

However, bankers caution against reading too much into the trend.

“I think these are only green shoots,” said CVR Rajendran, Managing Director & CEO of Catholic Syrian Bank.

“The credit uptick in the corporate segment is mainly driven by the capex in consumer-driven industries such as automobiles, auto-ancillaries and agro-based industries. Steel and fundamental industries are slowly coming back. As yarn prices go up, textiles might do well,” he added.

It will take some time for things to look up fully. “The decision-making in a few public sector banks and a big private lender has been affected by recent controversies, and getting a loan for a new corporate project is still difficult,” he said.

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