Banks are increasingly turning bullish on loans to corporates going by the growth seen in the second quarter of the current financial year ended September 30, 2023.
Either double-digit or noticeable y-o-y growth in corporate lending is posted by large banks during the second quarter of FY24. While SBI registered 6.62 per cent growth y-o-y , Bank of Baroda, ICICI Bank, Indian Bank, and Canara Bank posted 16.5 per cent, 15.3 per cent, 11 per cent and 10.24 per cent respectively in the domestic corporate advances.
Diverse factors are driving the growth in corporate lending.
“Expansion in industrial activity”
“Given healthy balance sheets of banks and corporates, strong demand and easing input cost constraints are encouraging expansion in industrial activity, which is evident in increased capacity utilisation,’’ Bibekananda Panda, Senior Economist, State Bank of India told businessline.
“Corporate credit growth is mainly driven by sustained buoyancy in services. Industrial credit growth is muted, nearly seven per cent whereas services credit growth is 25 per cent,’‘ he added.
As per RBI data, corporate lending grew 5.4 per cent in the period between April - August 2023. This is significant because this marked a second year of growth in corporate lending which grew by 6.4 per cent in April - August 2022 after registering a negative growth of 1.7 per cent in the same period in 2021.
According to a senior official of the Bank of Baroda, some segments of infrastructure barring a few like power are showing promising prospects and lenders are becoming increasingly “positive’” about lending compared to a couple of years ago.
Growth in corporate lending is expected to continue further in the current financial year. In the latest round of the Bank Lending Survey of RBI, bankers remained fairly optimistic on overall loan demand during Q3FY24 and bankers saw higher demand for loans from mining, infrastructure and retail sectors.
“Corporate loan growth is a healthy sign. This is an early indication of the revival of the private capex, which has been slow over the last several years. Ultimately, government capital expenditure alone cannot lead to sustained high growth,’‘ Prasanna Tantri, Executive Director of the Centre for Analytical Finance, Indian School of Business (ISB) said.
At a time when there is a caution on the increasing exposure to retail lending by banks, is corporate lending safe for banks?
There is, of course, no cause for concern, as of now. According to the RBI’s Monetary Policy Report for October 2023, the interest coverage ratio, which is calculated by dividing earnings before interest and taxes (EBIT) by interest expenses, of listed non-financial private companies in the manufacturing, information technology (IT) and non-IT services sectors has remained high, indicating comfortable debt servicing capacity.