MUMBAI: Corporate loan rate growth has trumped retail loan growth for the first time in seven years as banks slowed lending to automobiles and personal consumption.
Bank loan growth to large corporates touched a five-year high in FY19 clocking 8.2% to Rs 24 lakh crore compared to growth of less than 1% a year ago.
But retail loan growth, comprising auto, personal consumption and home loans among others, slowed from 17.8% to 16.4% at Rs 22 lakh crore, latest data on sectoral deployment of bank credit released by the Reserves Bank of India showed. Market experts attribute this rise in loans to lending rates turning more competitive after the liquidity tightness following the crisis in infra lender IL&FS because of which borrowers started moving to banks for their working capital needs.
“The main reason is increased competitiveness in banks in terms of lending rates compared to corporate bond market,” said Anil Gupta, head, financial sector rating, Icra. “The yield of such bonds increased after the liquidity crisis in September. Though government bond yields decreased after RBI started its OMO operations but that has translated in a decline in bond yields in the corporate bond segment.”
AA-rated three-year bond yield would be upwards of 9.2% as opposed to a bank loan which would cost around 8.4% at MCLR, suggesting upwards of 50 bps difference between the two routes. Working capital needs of large corporates would have increased due to GST compliance needs among others.
“Our sense is that a large part of the spike is because of working capital requirement of large corporates,” said Prakash Agarwal, head financial markets, India Ratings and Research. “Because of GST, the working capital cycle of corporates may have gotten elongated which warranted a slightly larger requirement of working capital.”
The rise in pace of loans to large corporates is significant, especially as almost all banks, new generation as well industry majors such as State Bank of IndiaNSE -0.56 % and HDFC BankNSE -1.52 %, are focusing on their retail loan books to grow business and profits.
“Retail continues to remain a priority. Banks have not only increased their exposure to retail but also bought out portfolio pools from NBFCs through securitisation in this period,” said Gupta.