As corporate credit growth has gained momentum over the past 9-12 months, led by demand for refinancing and working capital, private banks are betting on an increase in private sector capital spending and healthy growth led by by NBFC to boost demand for corporate credit in FY24.
Increased capital spending, reflected in improved capacity utilization levels and some capacity expansion, led to accelerated growth in the third and fourth quarters of FY23, led by financing to the manufacturing sectors and infrastructure, such as iron and steel, telecommunications, power supplies, and retail sectors. , roads, gems and jewelry, energy, commercial real estate, services and oil, the bankers said.
“This is greatly contributed to by the fact that a lot of them (companies) are moving forward with the capex cycle because most of the sector or industries are at 75-85 percent capacity utilization,” Harsh said. Dugar, director of Wholesale Banking at Banco Federal. on the earnings call.
“We see a lot of capital spending coming in, and along with that increased level of activity, more working capital requirements will be required,” he added.
Until now, Capex has been largely driven by government spending and initiatives like ‘Make in India’ and the PLI (production linked incentive) scheme. In addition to the impact of this accelerated public spending, there are also “early signs of some capital spending in the private sector,” ICICI Bank said.
Also Read: Corporate Credit Index Moderates in Second Half of FY23 on Global Inflation and Slowdown
“There has been a recovery in corporate credit growth after the change in the monetary environment and some shift from bond markets to banks. We are certainly seeing lending opportunities in some of the sectors like NBFC and real estate,” said Anindya Banerjee, CFO of ICICI Bank Group.
More conservative lenders such as Kotak Mahindra Bank and Axis Bank, which have flagged concerns about irrational and competitive pricing on wholesale loans, said prices have improved since the fourth quarter, leading to a steady rebound in corporate credit.
In addition, there are also early signs of capacity expansion, albeit few and limited, in some sectors such as infrastructure, logistics and chemicals, said KVS Manian, a full-time director at Kotak Bank. Line of business.
“As the private investment that is being talked about in terms of adding capacity happens in the next few quarters, one could see growth there,” Manian said on the investor call, adding that the NBFC segment is seeing strong growth. Growth led by good capitalization levels. , upturn in demand and healthy collections.
Axis Bank’s deputy managing director, Rajiv Anand, also said that while not all private equity spending is currently financed by bank loans, given strong cash flows and low levels of corporate leverage, the bank is seeing a “reasonably strong increase in terms of private capital spending” and demand for credit should improve.
As such, the corporate credit portfolio remains strong and momentum is expected to continue in fiscal 24, the bankers said, adding that growth in the early months is likely to be led by credit demand from conglomerates. as other large and midsize companies catch up. in terms of growth and capacity utilization.