Hinting at economic revival, large banks see surge in big corporate loans

MUMBAI: In a sign of economic revival, large banks, including State Bank of India, the biggest player, are seeing a surge in big corporate borrowings, which have exceeded the sector's lending growth rate. Bankers expect loan demand to pick up further by the end of the financial year in March.

Private sector banks, including HDFC Bank and Axis Bank, posted a 25% year-on-year growth in large corporate loans in September, while SBI recorded a 21% increase. ICICI Bank's corporate lending rose 7%, still higher than the banking sector's growth of 5.5% in September, according to an RBI data on sectoral credit flows.

The banking sector appears to be coming out of a single-digit corporate loan growth phase, during which top-rated companies raised funds directly from the market through commercial papers or corporate bonds. Now, demand is largely driven by a pick-up in infrastructure sector projects, according to bankers.

“Along with renewables (of loans), we see a large number of road projects coming up. Power projects, too, see some traction," said SBI chairman Arundhati Bhattacharya. “A large number of renewable projects is coming up."

Government spending is likely to spur demand. "The steps taken by the government in the infrastructure sector are in the right direction and the sector will be in a much better shape next year," V Srinivasan, deputy MD of Axis Bank, said at a media conference.

A section of bankers also said some companies are refinancing high-cost debt after banks cut their base rates by an average of 3040 basis points (one bps is 0.01%) over the past few months. “After the base rate cuts, we have seen corporates coming up for loans as the price is now cheap," said B Sriram, managing director of SBI.

Refinancing of loans, too, will happen over a period of time and that will help expand loan growth, said a senior official with a public sector bank.

Bankers do not deny any signs of revival and see some green shoots in the economy. “From 7% now, credit demand from companies is likely to increase to double digits by the end of the current fiscal year," said Chanda Kochhar, MD and CEO of ICICI Bank. "Next year will be better." Cash flows of existing projects are reviving and we are seeing green shoots in car, commercial vehicles and mining sectors. Gradually , we are seeing an improvement, she said.