The value of outstanding loans to major industries fell for the 11th consecutive month in July 2021, according to data released by the Reserve Bank of India (RBI). Much of the gradual growth in bank credit has been led by the retail segment as the trend of corporate deleveraging continues.
Analysts attributed the credit crunch in large industry to lower use of sanctioned limits and reduced exposures by banks. In a report released Wednesday, ICICI Securities said that the underutilization of limits, modest demand prospects and reduced exposure in a few sectors have caused bank lending to the industry to decline.
Last month, State Bank of India (SBI) Chairman Dinesh Khara said the authorized limits were still underutilized by 25%. Likewise, banks heavily involved in corporate lending, such as the Bank of Baroda (BoB), have admitted to knowingly reducing some low-margin loans.
Sanjiv Chadha, chief executive and CEO of BoB, told FE in August that an abundance of liquidity had put price pressure on the corporate side. “The only reason growth has been subdued in this quarter (Q1) is that we let some low-cost business loans slip away because we believe the liquidity scenario should start to change over the next few months. coming months, “he added.
Despite a low interest rate environment, corporate bank lending has not been very successful. “The interest rate environment is quite favorable, but spreads remain at high levels, suggesting that lenders are still reluctant to relax lending standards or that borrowers are not yet comfortable to leverage, ”Kotak Institutional Equities (KIE) said in a note Wednesday. .
However, business lending trends could improve in the coming months. ICICI Securities said the outlook for demand is improving. “We believe that India Inc, having gone through a phase of deleveraging in recent years, is now better positioned and confident to anvil on the road to re-indebtedness,” said the brokerage, adding that Indian financiers have turned their backs. also afflicted with abundant liquidity and capital buffers to exploit the emerging opportunity.
Price trends are also expected to improve, according to BoB’s Chadha. “There is an opportunity to price business loans in a slightly better way than what was possible over the past 12 months,” he said, adding that there was quite a bit of activity. in sectors such as roads, town gas projects and renewable energies. . The expansion of brownfields is also underway, he said.
A sharp drop in bond market rates until July 2020 had led to a narrowing of the spread between bank financing and bond rates, but bond yields now appear to be trending upward, KIE analysts wrote. in a report.