What the pick-up in credit demand means for the Indian economy

In a clear sign that the Indian economy may be turning around for the better, there is an uptick in fresh capital investment by corporate houses, with demand for bank loans going up. 

The upsurge in bank loans is being led by infrastructure, roads, renewable energy, and oil sectors.

How has this demand pattern changed?

In the last few quarters, loan demand was led by higher utilisation of working capital due to increase in commodity prices. However, according to a report in The Economic Times, from the September quarter onwards corporate loan growth has trended towards fresh capacity building. 

According to the report, bankers say that most of the growth has been investment-led. Bankers further say they have seen good growth in the roads sector and renewable energy. This growth is coming from relatively larger corporates because of the fact that they have deleveraged considerably over the last few years.

What does the available data say?

According to data with the Reserve Bank of India, credit to the industry rose by 12.6% in September 2022 compared with 1.7% growth a year earlier. Notably, credit to large industry accelerated to 7.9% against a contraction of 2.1% in September 2021.

According to an RBI survey, seasonally adjusted capacity utilisation of the manufacturing sector improved from 73% in the March 2022 quarter to 74.3% in the June quarter, its highest level in three years.

How does the trajectory of corporate loans look, going forward?

Bankers expect corporate loans to pick further momentum in the remaining two quarters of this fiscal year.

How big is the term loan pipeline of the State Bank of India?

According to the ET report, the largest Indian lender has a term loan pipeline of Rs 2.4 lakh crore and sees demand from sectors like infrastructure, services, power, renewable energy, and oil marketing companies.