Mixed hopes of renewed business loan growth

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Business loan growth is on the rise, but questions remain about a full-fledged recovery later in the year.

It is expected that as economic growth returns to normal and capacity utilization increases, there would be more demand for loans from businesses.

“With increased capacity utilization, renewed economic growth and the need to stimulate the economy through primary infrastructure investment, I believe business demand will increase. Banks are becoming more lenders. attractive for this category and there is a recovery in bank lending in the third quarter,” said Shyam Srinivasan, Managing Director and CEO of Federal Bank.

One of the reasons non-food credit grew more than 9% in December was because big businesses borrowed from the banking system, he said.

According to data from the Reserve Bank of India, non-food credit grew by 9.3% in December 2021, compared to 6.6% a year ago.

However, industry credit growth improved significantly to 7.6% in December 2021 from 0.4% in December 2020, while personal loans recorded the strongest growth at 14.3% year-on-year annual.

Deleveraging

A recent note from CareEdge said growth in borrowing from the large corporate segment, which accounts for 77.5% of the industry category, was supported by additional investment in the field as well as higher prices for raw materials. “The green shoots currently seen are expected to improve in the future,” he added.

Amid the Covid-19 pandemic, most banks have focused on retail credit and only a few seem eager to grow their business portfolio. Many bankers noted that demand for corporate loans was weak.

“Demand for corporate loans is still a bit subdued as many companies deleverage. Many companies have also raised a lot of money through QIPs and the stock market. Highly rated companies are turning to the bond markets, where the liquidity is abundant,” noted one banker.

Kotak Institutional Equities, in a research note, maintained its general outlook on weak corporate demand.

“We are still not overly optimistic about loan growth as early signs of recovery in corporate investment spending are not yet very encouraging. Corporate balance sheets have seen some strengthening due to the favorable commodity cycle, but general deleveraging trends continue,” he said.

Published on

February 09, 2022

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