Private Banks Pivot To Mid-Corporate Lending As Retail Growth Slows
Indian private banks are increasingly leaning on mid-sized businesses to boost their loan book amid muted capital expenditure activity and lack of demand from large corporates.
India's corporate credit growth has witnessed a slight pick-up in the March quarter as private sector banks push for big loans to mid-sized corporates amid slowdown in retail credit, three people told NDTV Profit.
Overall non-food credit growth was up by 12% year-on-year in March, compared with 16.3% a year ago, according to Reserve Bank of India's monthly data. Loans extended to the industry, which consists of micro and small medium enterprises but excludes services, grew 8% on year in March, unchanged from the previous year.
Indian private banks are increasingly leaning on mid-sized businesses to boost their loan book amid muted capital expenditure activity and lack of demand from large corporates, two bankers said.
"The traction in corporate credit growth has largely emanated from the mid-corporate segment, which grew by 18% on-year as of February, outpacing the overall system credit growth of 11%," Krishnan Sitaraman, Chief Ratings Officer at Crisil Ratings said.
"In contrast, credit growth to large corporates remained subdued and grew by just 5.2%, lower than 6.9% growth seen a year back," he said.
This has come at a time when growth in retail portfolios has tapered off due to regulatory restrictions on unsecured loans.
Personal loans rose by 14% year-on-year in March as compared with 17.6% growth in the same period a year ago, RBI data showed.
"We are yet to see a broad-based pickup in private sector capex," Sitaraman said, adding that major credit demand from corporates is working capital demand and that there has been some reallocation from slowing growth in retail and lending to non-banking financial companies.
Bankers also echoed these thoughts and said that they have calibrated lending towards mid-sized companies in sectors such as logistics, real estate, power, especially renewables and trade.
Banks are pursuing niche mid-corporate clients where they understand the cash flows and sectoral dynamics well. This segment is safer and more predictable than commodity-led large corporates, a private sector banker said, speaking on conditions of anonymity.
While banks are courting mid-sized businesses, larger corporates are increasingly by passing them. With further interest rate cuts on the horizon and liquidity easing, highly-rated firms are turning towards capital markets for cheaper funding, one of the three people quoted above said.
"This fiscal, some of the larger corporates that are AA and above-rated companies are flocking to the bond market where transmission of rate cuts is quicker than in bank loans," Sitaraman said.
Last week, the yield on the 10-year benchmark Indian government bond touched over a three-year low at 6.32%. Currently, the yield on 10-year bonds issued by the National Bank for Agriculture and Rural Development — considered a benchmark in the corporate bond market — was at 6.97%.
In contrast, the weighted average lending rate on fresh rupee loans of scheduled commercial banks was at 9.35% in March, down from 9.40% a month ago.
This trend is corroborated by industry veterans who believe that capital market borrowings by large companies are undercutting demand for traditional bank loans, further weakening the growth in large-ticket corporate credit.
Going forward in the current financial year, bankers expect mid-corporate and SME lending to remain resilient, supported by sector-specific momentum in renewables, logistics, and select pockets of real estate.
However, overall corporate credit growth is expected to remain modest, unless private capex revives materially.
There will be some green shoots, another senior banker said. But the broader recovery in corporate lending hinges on global stability and trade dynamics including the unfolding of US tariff scenario and whether private investments pick up meaningfully.
"On tariffs, we have done a fairly elaborate exercise bottom up looking at our portfolio. At this point in time, we don't see any material issues with the portfolio," Rajiv Anand, Deputy Managing Director of Axis Bank said in the post earnings call of the March quarter.
"But remember, there are so many moving parts, both positive as well as negative. We will continue to be watchful as this space evolves," Anand said.
