SBI: Bankers hope business lending growth resumes as economy opens up

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Bank credit to industry remains moderate, down 1.7% since the start of the year, as companies reduce their debt and exploit existing capacities in a demand environment made uncertain by the pandemic. But bankers expect a pickup in business lending growth as the economy opens up, which makes a strong business case for capital spending.

Large industrial loans, which account for around 30% of non-food credit, have seen lukewarm demand so far in 2021, the latest central bank data showed, highlighting a trend among businesses to save money, to deleverage as much as possible and to let the respective loan limits sanctioned by the lenders underutilized. The demand for retail credit, however, grew during the period of episodic lockdowns and restrictions on mobility.

Analysts and bankers believe the demand for credit will now increase as companies invest for the next growth cycle. In a report released earlier this month, Japanese investment bank Nomura said growing optimism and abundant liquidity should boost demand for loans.

“Banks expect a general improvement in demand through the first quarter of 2022, with highest levels of optimism for personal loans, followed by manufacturing and services, while demand for loans to ‘infrastructure is lagging behind, ”Nomura said. “The simultaneous rise in demand for loans and the easing of loan supply conditions suggest that credit growth should ultimately accelerate. ”

An uncertain business environment has led to moderate demand for credit from industries traditionally rich in assets, such as industrial metals, metal products, iron and steel, construction and cement. Instead of adding more debt to their balance sheets, several companies in these industries have sought to deleverage, harnessing cash flow to improve their debt profile.

Incidentally, better profiles should now prompt many companies to add debt as expansion capital.

“We believe that India Inc, having gone through a phase of deleveraging in recent years, is now better positioned… (for) re-indebtedness. ”

said in a note. “The recovery in economic activity and the spin-off effect of increased investment and spending by businesses and governments on consumption will support growth momentum by more than 15% in fiscal years 22 to 25.”

Certainly, the lower rates in the local and foreign bond markets meant that companies were turning to these sources for their short- and medium-term financing needs rather than to the banks.

Bankers believe that as companies embark on big projects, demand for loans will rebound. For example, Bank of Baroda announced a 10% year-on-year decline in business lending as it waived low-yielding advances in the first quarter. But CEO Sanjiv Chadha said he expects loan growth to accelerate this year, helping the bank increase its loan portfolio from 7% to 10%. This would include a 5-7% expansion of business loans.

“Personal loans will always grow faster than business loans, but we are seeing increased demand for road projects, town gas projects and renewable energy projects, which will stimulate demand for loans,” Chadha said during the bank’s first quarter earnings call.

Personal loans increased 12% year on year, helped by a weak base and driven by demand for housing and vehicles. Credit card spending has plummeted.

Home loans rose 10% and auto loans increased 11% despite the April and May closures. But outstanding credit card loans fell 12% year-on-year as consumer confidence was hit by localized bottlenecks.

The State Bank of India (SBI), which reported a 2.3% drop in business loans, also expects the situation to improve this fiscal year. President Dinesh Khara said he expects demand from businesses to improve, increasing his lines of credit as individual and industrial borrowers add more loans.

Certainly, industry demand is crucial to supporting overall credit growth.

“We believe that the growth of the sector will have to emerge as a key driver to stimulate credit growth in the years to come. Although this may occur with some lag, the recovery in consumer demand and the increase in spending may be the potential triggers, ”ICICI Securities said.

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