Top Indian companies have been reluctant to announce new projects over the past few years due to low capacity utilisation
India Inc's demand for credit is rising, with capacity utilisation of manufacturing companies touching 76.1 percent in the September quarter and many companies planning to launch new projects over the next few months, top bankers said at an event.
Rajkiran Rai G, Managing Director and Chief Executive Officer (MD and CEO) of Union Bank of India reportedly said the capex cycle is witnessing traction, citing investment proposals received from firms in the steel, textile, cement, oil and gas sectors.
Capacity utilisation rose from 73.8 percent in Q1 FY19 to 76.1 percent in Q2 FY19, higher than the long-term average of 74.9 percent. Data compiled by the Reserve Bank of India (RBI) suggests that seasonally adjusted capacity utilisation also increased to 76.4 percent.
RBI, in its monetary policy statement on December 5, indicated that industrial activity has been healthy in the ongoing quarter and that core industries' growth has recovered due to double-digit expansion in coal, cement and electricity.
Gross fixed capital formation (GFCF) expanded for the third consecutive quarter on the back of the public sector's push for rural infrastructure and national highway projects. This can be seen in the significant increase in cement production and steel consumption.
"I think we are now the lender of the last resort. The 14 percent year-on-year growth for SBI was a very good number. We are seeing demand from across sectors—government, roads and renewable. There are proposals from the oil and gas and even non-banking finance companies (NBFCs)," said State Bank of India Chairman Rajnish Kumar.
Top Indian companies have been reluctant to announce new projects over the past few years due to low capacity utilisation. They were exploring the new acquisition opportunities that followed the implementation of the Insolvency and Bankruptcy Code (IBC).
Aditya Birla group took over cement plants of Jaypee group and Binani Cement, Tata Group acquired Bhushan Steel and Usha Martin's steel business and Reliance Industries rolled out its telecom business, all in the past two years.
"It's not brownfield, it's greenfield. Power transmission has taken lot of money. Generally, we are seeing a pull beyond working capital. There is capex which is coming back. We are also seeing expansion in the bankable market as a consequence of events like goods and services tax," Romesh Sobti, MD and CEO of IndusInd Bank, said at the event.Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank, said that apart from big corporate houses, micro, small and medium enterprises are also keen to borrow more.The Great Diwali Discount!
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