Money & Banking

India Inc yet to line up for bank credit

G Naga Sridhar NS Vageesh Hyderabad/Mumbai | Updated on January 23, 2018

Firms have not made big investments; with NPA bulge, banks too going slow

It is four months since the Reserve Bank India began easing interest rates, but India Inc is yet to make any significant new investment.

With companies saying that good days are still far away, banks are yet to see any revival of credit demand. Many banks, including the country’s top lender State Bank of India (SBI), have indicated the weakness of credit demand at various levels.

For 2014-15 SBI’s credit growth (domestic) was just 6.80 per cent, about half its average rate over the past decade. The disaggregated numbers are more worrisome. For example, loans given by SBI to mid-size corporates (with turnover of ₹50 crore to ₹500 crore) fell 0.28 per cent to ₹2.27-lakh crore while advances to small enterprises (SME loans) rose only marginally by 0.95 per cent to ₹1.81-lakh crore as on March 31, 2015, compared to the year-ago period.

The large corporate loans portfolio has grown a bit for SBI but not for other public sector banks.

No credit pick-up

“Right now, there is no credit pick-up. The little traction which has been noticed recently is due to some demand from retail and MSMEs but not from corporates,” R Athmaram, Executive Director, Bank of Maharashtra, told Business Line.

For instance, Punjab National Bank saw its commercial real estate loans fall 4 per cent. Many banks are realigning their lending strategies after the bitter experience with infrastructure loans.

Asked why banks have not pushed corporate credit, a top banker said, “At a time when most banks have over 5 per cent gross NPAs (non-performing assets or bad loans), you can’t expect them to burn their fingers some more by pushing corporate advances.”

According to R Kalra, Managing Director and CEO (Additional Charge), Andhra Bank, credit demand remained weak despite some banks passing on the rate-cut to customers. “I expect things to improve by the last quarter of current fiscal,” he said.

Banks claim that with thin net interest margins, further rate cuts on advances (to attract corporate clients) are not possible without first pruning deposit rates.

According to corporates, the aggregate demand in the economy is weak. “Banks have passed on only half of the 50-basis point cut that the RBI made since the beginning of the year. That will not make the entrepreneur borrow more because the cost of capital doesn’t change much. Interest rate is only a circumstantial motivator,” said A Subba Rao, CFO, RPG group.

Published on May 24, 2015

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