Industrial credit must rise to capex occasion
After years of calm, bank credit growth is on a tear. Incremental credit disbursement is likely to touch an all-time high of Rs 19 lakh crore, according to ICRA, while India Ratings pegs 17–18 per cent growth this fiscal. The growth momentum is likely to go gangbuster next fiscal as well, notwithstanding concerns about rising interest rates and tight liquidity conditions, which are often known to dampen demand. Interestingly, a large part of this projected growth comes from the retail segment comprising households taking out loans for homes, cars and everyday purchases. On the other hand, industrial credit has been the missing link in the overall bank credit growth story. As misfortune would have it, bank lending to large borrowers, particularly infrastructure companies, may come under focus in the backdrop of the unfolding Adani Group-Hindenberg saga.
The reluctance of both bankers and large borrowers towards fresh credit is unmistakable. If lenders seem wary and conservative fresh from the scars of the recent toxic loans clean-up exercise, India Inc remains ‘afraid’ despite being reminded about its ‘Hanuman-like strengths’. The two key sources of corporate credit demand, namely, growth in production capacities and working capital requirements, continue to follow an unidentifiable rhythm. And as the government has been insisting, we need to evolve as an ‘investment-led’ economy, but until capacity utilisation improves, it won’t trigger new, large-scale investments. For now, though, the government’s capital expenditure drive is making up for the slack in private investment, but the industrial credit cycle must leap to life in the coming quarters to goose the economy.
Banks have also been mindful of large borrowers, given their inherent need to diversify borrower profiles and dilute credit concentration. Some of the large loans ended up in a scrap heap, and following the series of regulations after 2015–16, the share of large borrowers has been declining. Their bad loans fell to 7.7 per cent of total advances as of FY22, while the gross NPAs of all loans will likely touch 4.9 per cent in FY23, down from a peak of over 9 per cent just a few years ago. In other words, Indian banks are profitable, their asset quality has improved significantly, and their books are clean with no asset-liability mismatch. As they embark on the next credit cycle, the banking regulator must maintain its vigil to avoid mistakes of the past.