Working capital drawdowns of corporates and MSME borrowers rising with input costs

Mumbai: Banks are seeing a rise in drawdowns on the working capital limits of corporates and MSME borrowers as rallying commodity prices raise input costs. Bankers said while earlier 30-40% utilisation in highly-rated large corporates was a big challenge, these limits have now been exhausted by up to 60-70%, raising hopes of fresh loans.

“The working capital drawdowns are increasing on the corporate book because their input costs have gone up,” said Samuel Joseph, deputy MD,

. “Many companies that were not utilising fund-based exposures at all, have started using that, which will add to the overall corporate credit growth. A 30-40% utilisation in highly rated large corporates was a big challenge earlier, today they are pushed up to 60-70%.”

The all-time high level of WPI inflation at 15.08% in April has been driven by increased prices of manufactured products, fuel and power. Higher energy and metal prices due to supply-side bottlenecks have added to input cost pressures for the domestic producers.

Last week stated companies that it lends to are utilising a larger portion of their working capital limits sanctioned by the bank, at 56% now. The bank said it has visibility of credit proposals worth ₹4.6 lakh crore including unutilised levels of working capital limits, term loans and loan proposals in the pipeline.

“We are seeing much better capacity utilisation in terms of the working capital,”

chairman Dinesh Khara said. “We are quite hopeful that in the coming days, the environment would be conducive to corporate credit growth.”

A recent

analysis, private sector project announcements touched an 11-year high, suggesting early signs of a pick-up in investment activity, following the Covid-19 pandemic. As per RBI, the capacity utilisation for the manufacturing sector at the aggregate level picked up to 72.4% indicating improved manufacturing activities.

Revival in economic activity and improving utilisation of corporate credit limits are likely to augment loan growth further. “In the current environment growth opportunities are high on the corporate side as their working capital requirements have gone up due to an increase in input costs,” said Prashant Kumar, MD,

. “Their dependence on money outside the banking system has gone down because banks still can give cheap money.”


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