Corporate loan grows 21% in Q1, hints at revival in private sector capex

Corporate loan

Corporate lending has shown signs of revival in the first quarter of the current financial year, according to a Moneycontrol analysis of June numbers of 20 large private and public sector lenders.

The banks reported up to a 21 percent growth in corporate loans in the quarter ended June 30 from the year-ago period, offering some relief amid concerns over sluggish private sector capital expenditure.

The findings are in sync with the Reserve Bank of India’s estimates that capex will increase to Rs 2.45 lakh crore in FY25 from Rs 1.59 lakh crore in the previous year. The projections were made in the central bank's monthly bulletin earlier this week.

The growth in the corporate book was led by the State Bank of India (SBI), Bank of India, Indian Bank, Punjab National Bank, Canara Bank, IndusInd Bank, Kotak Mahindra Bank and South Indian Bank.

These banks posted a year-on-year growth of 5-15 percent in their corporate book in the June quarter, and the trend was visible for most of FY24 as well.

SBI chairman Dinesh Khara projected nearly Rs 5 trillion in loans pending sanctions and disbursements for FY25 in a conference call with investors after the June quarter earnings.

The lender’s corporate loan book grew by Rs 1.57 lakh crore to Rs 11.39 lakh crore in the June quarter, up nearly 16 percent from the previous group.

Bank of India's book grew 15.5 percent to Rs 2.24 lakh crore, while UCO Bank’s wholesale loans rose to Rs 64,611 crore, up 19.98 percent.

Among the private banks, Kotak Mahindra Bank’s corporate loan book increased by 21 percent in the first quarter to Rs 93,581 crore, while Axis Bank posted a 14 percent year-on-year growth at Rs 2.91 lakh crore.

Rikin Shah, banking analyst with IIFL Securities, attributed the pick-up in corporate loans to better risk-adjusted pricing.

Till about mid-2023, pricing on corporate loans, especially the well-rated large entities, including conglomerates, was seen cutting too fine, mirroring the RBI’s benchmark rate.

With the repo rate going up from 4 percent to 6.5 percent from May 2022 to June 2023, upward repricing of loans sanctioned during the covid pandemic led to pricing turning favourable for the corporate segment.

The growth in corporate loans also reflects the RBI's recent commentary on a gradual pick-up in private capital expenditure.

According to the RBI monthly bulletin published this week, investment intentions of private corporates remained buoyant during 2023-24 as reflected in the rising total number of projects as well as the total cost of projects sanctioned by banks/FIs.

In FY24, about 944 projects got assistance from banks/FIs with a record high total cost of projects of Rs 3,90,978 crore, as compared to 547 projects sanctioned during the previous year, having a total cost of Rs 2.67 lakh crore.

The report added that capital investments by private companies, a major driver of India’s long-term growth, has been gaining traction, after moderating during the COVID-19 pandemic.

Capacity utilization at 78 percent in March 2024, an 11-year high, also points to a possible sustained recovery in capex.