NEW DELHI: Bank credit growth hit a 59-year low of 5.56 per cent in fiscal 2020-21 and is expected to languish near those levels this year too, thanks to corporates rapidly deleveraging by repaying high cost loans through funds raised via bond issuances.
Data analysed by the SBI research wing showed that the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in the pandemic year 2021.
Refineries, Steel, Fertilizers, Mining & Mineral products, and Textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.
In fact, Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital Goods were among the sectors where loan reduction of 20 per cent or more were reported during 2021.
To be sure, Fertilisers have reduced their loan funds by as much as a massive 67.2 per cent.
Simultaneously, taking advantage of a low term structure of interest rates, corporates are reducing their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds to increase by nine per cent.
For example, the spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.
Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 202,1 respectively.
“This trend is continuing in FY22 also,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
Meanwhile, these corporates have increased their cash and bank balance by around 35 per cent at an aggregate level in FY21 compared to the previous year, suggesting a conservative approach to conserve cash during uncertain times.
Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.