Large corporates going back to banks amidst signs of capex pick up

Another indicator that the economy is slowly getting back on track and signs of pick-up in private sector capex. After 14 months of contraction, loan growth to large corporates turned positive in October. Loans to medium sized firms and retail still continue to drive banks’ loan book.

Loans to large corporates rose 0.5 % (on a year-on-year basis) to Rs 22.7 lakh crore in October compared to a contraction of 1.8 % a year ago. All major segments except services including agriculture, industry and retail posted higher growth rates over previous year. Overall bank credit rose 6.9 % in October compared to 5.2 % a year ago according to the latest data on sectoral deployment of bank credit released by the Reserve Bank of India on Tuesday.

The real sector data releases on the core sector and economic growth point to a sustained optimism on the credit front. “What is encouraging to see is a 10.7% growth in gross capital formation in Q2’21-22, driven primarily by public capital expenditure although there are also signs of a pickup in private capex in the current fiscal” said Suman Chowdhury, chief analytical officer, Acuité Ratings & Research.

Credit growth to industry including small and medium sized firms picked up to 4.1 % in October 2021 from a contraction of 0.7 % in October 2020. Size-wise, credit to medium industries rose 48.6 % in October 2021 as compared to 20.8 % last year. Credit to micro and small industries accelerated to 11.9 % in October 2021 from 0.7 % a year ago.

As economic activity picks up assuming no further spike in infections, credit demand too is expected to rise. “Pick up in activity levels will drive credit growth, with positive effects to asset risks and continued improvement of corporate financials and funding constraints at finance companies” said global ratings firm Moody’s of Indian banks in its report on outlook for emerging market banks in 2022, released on Tuesday.

Retail loans rose in October 2021 vis-a-vis 8.7 % in October 2020 primarily due to ‘housing’, ‘vehicle loans’ and ‘loans against gold jewellery’ RBI data indicated. Credit to agriculture and allied activities registered an accelerated growth of 10.2 % in October 2021 as compared to 7.2 % in October 2020.

Slowdown in credit growth of services continued, as it decelerated to 2.9. % in October 2021 from 8.6 % a year ago. On an incremental year to date basis also loans to large corporates are still to pick up.


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