Good News For The Economy: Corporate Credit Demand Picks Up, Likely To Grow Further

The credit demand by the manufacturing and services industry is increasing which in tandem with the faster economic growth, Business Standard has reported.

Senior bank officials and other financial institutions say that the growth in credit demand is majorly for working capital and new acquisitions. They believe that one of the reasons for this could be the ongoing insolvency proceedings.

Private lenders who have announced their results for the quarter ending June including HDFC Bank, IndusInd Bank, RBL Bank and Federal Bank say that the corporate credit growth is over 20 per cent from the last year’s quarter.

“Corporate credit has picked up this fiscal (2018-19). Last fiscal (FY18), it was less than five per cent (growth), with a low base. We are seeing private banks leading with a higher share of the overall credit — some are recording 15-20 per cent corporate credit growth,” Krishnan Sitaraman, senior director at CRISIL Ratings is quoted to have said. “On the infrastructure side, roads and construction is seeing increased demand for corporate credit. Plus, there is lower risk in these projects as compared to the risk in the power sector or capital goods. Private investment still needs time to pick up; public investment will be dominant,” Sitaraman is quoted to have said further.

According to data released by Reserve Bank of India (RBI) for May, corporate credit has grown by 1.4 per cent when compared to a contraction of 2.1 per cent last year. It is also reported that since the implementation of Goods and Services Tax (GST), there has been an increase in working capital requirements and build-up size in midcap companies.

Some banks, including private sector banks have tried to take advantage of 11 Public Sector Banks (PSBs) being put into the RBI’s Prompt Corrective Action (PCA) list. “We are seeing corporate credit growing at a much faster rate, especially since these 11 banks are no longer active in the corporate sector,” R A Sankara Narayanan, managing director and chief executive of Vijaya Bank is quoted to have said.

RBI data also stated that mining and petroleum sectors have seen a strong growth and credit to Non Banking Financial Institutions (NBFC) has grown by a whopping 30 per cent in May.