India in strongest credit growth phase since 2012 on robust corporate demand: Report

Mumbai: India is witnessing its strongest phase of credit expansion since 2012 on the back of robust corporate borrowings, a foreign brokerage said on Thursday.

Corporate loan growth rose to a 13-year high in May, supported by sustained domestic demand, rising wholesale prices and the Reserve Bank of India's (RBI) regulatory easing measures, according to the report by Morgan Stanley.

Large-ticket corporate lending has emerged as the biggest driver of the current upcycle, with loan growth accelerating to 18.3 per cent year-on-year in May, the highest level since 2012, indicating a sharp revival in investment-related borrowing by businesses, the brokerage said.


Also read: India's private banks draw thinner margins on tepid credit growth

A majority of banks have shown a sharp uptick in corporate credit demand in the April-June period, which is generally a soft quarter. However, in earnings calls, a majority of lenders said the credit growth is coming mainly for working capital and not greenfield or brownfield, which can be classified as investment-led.

Increases in rates in the money markets, which were serving as a cheaper alternative for entities wanting to borrow, have also led to a preference for banks. It can be recalled that many corporates had chosen to turn lean in the face of the Covid-19 pandemic by de-leveraging or paying off their loans. Over the last few years, concerns have been raised about India Inc's reluctance to invest for growth.

The brokerage report said retail borrowing has also remained resilient.

Household loan growth stayed above 15 per cent year-on-year for the fourth consecutive month, aided by strong housing demand and a recovery in unsecured personal lending growth.

The report noted that the improvement in unsecured lending has been supported by the RBI's easing of some earlier regulatory tightening measures, which had weighed on personal loan growth.

Non-banking financial companies have also participated strongly in the recovery. Retail loan growth for NBFCs accelerated to 19.5 per cent year-on-year in May, compared with 14.9 per cent in the year-ago month.

The brokerage expects overall credit demand to remain strong in the coming quarters, supported by continued capital expenditure, improving export growth and resilient domestic consumption.

Also read: Credit-deposit gap to persist as loan demand dynamics have changed, says SBI Research

Housing loans are likely to remain a key anchor for household credit growth, while discretionary spending on consumer goods, automobiles and services is expected to provide additional support to retail borrowing.

The report also said that India, Japan, Singapore, Hong Kong, Australia and Taiwan have seen the biggest accelerations in loan growth. Korea has been an exception as corporate capex is largely funded from internal accruals.

Thailand is the only economy in the group that has weak credit growth given an uneven expansion so far, in which households have continued to deliver.