Infrastructure Drives Banks’ Corporate Loan Growth

MUMBAI: Banks have witnessed strong growth corporate loans in the third quarter, driven by demand from companies in the infrastructure and power sector. With economy expected to grow at a faster pace and the government’s focus on strengthening the infrastructure, lenders expect the corporate loan demand to remain firm in the coming quarters.

“We have seen much better utlisation when it comes to corporate loan book. As far as pipeline is concerned, it is somewhere around Rs 4.6 trillion and out of this Rs 4.6 trillion, public sector accounts for 25% of proposals and private sector hold the major remaining share,” said Dinesh Khara, chairman, State Bank of India in earnings call. “Last quarter we had grown the corporate book by 7%, this quarter we have almost seen 11% growth, so from that aspect it is very positive,” he added.

He said that the Interim Budget has also given re-assurance on continuation of infrastructure spend which will open opportunities for corporate book growth and newer initiatives like solar and renewable energy are new growth levers.

“As far as corporate is concerned, there is an increase of around 10.5%. There is a good demand from companies in road and infrastructure sector,” said Atul Kumar Goel, MD and CEO, Punjab National Bank, in an earnings call. “Some of the corporate who were having the sanction limit, they were not utilising it. Now they have started utilising because there is a strong economic growth,” he added.

The demand from companies in the steel and cement industry has also gained pace, he added. The RBI has raised its GDP growth forecast for 2023-24 by 50 basis points to 7 % while retaining CPI inflation projection at 5.4 %. High economic growth will fuel infrastructure spending, say experts.

“In the construction equipment, thanks to the steady and improving demand on the infrastructure side, the industry grew as well as we grew. Our disbursement grew at 38% Y-o-Y in Q3 which helped us gain the market share,” said Shanti Ekambaram, Whole Time Director, Kotak Mahindra Bank in earnings call. “Earth-moving equipment, road and material handling equipment, segments like mining, roads, urban, semi-urban housing, saw a lot of demand for construction equipment and also aided by the significant improvement in the macroeconomic scenario,” she added.

She expects the bank to retain its growth momentum in this segment in the last quarter and also expects the industry would also to continue to show a good growth.

Lenders have a robust loan pipeline to fuel their credit expansion in the coming quarters. “We are negotiating reasonably (on corporate loans). Earlier corporates dominated the discussions, that dominance is not present at the moment. We are not extending credit below 8% interest rate to anybody, including AAA-rated entities, including government sector entities,” said K Satyanarayna Raju, MD & CEO, Canara Bank. “We have undisbursed loan sanctions of more than Rs 40,000 crore while sanctioned loans that are yet to be done is more than Rs 20,000 crore,” he added.

Data from the Reserve Bank of India (RBI) also shows that corporate loan demand is gaining momentum. The total bank credit to small, medium and large industries grew 8.6 % year-on-year (yoy) to Rs 36.65 trillion as of December 2023 compared to Rs 33.75 trillion as of December 30, 2022. In November 2023, the credit growth small, medium and large industries was 6.6% while loans to these entities recorded 5.9% year-on-year growth.