With India Inc continuing with its debt reduction exercise, and repaying high cost loans, bank credit growth could remain tepid in the current fiscal year as well,
State Bank of India
has said in a report. Bank credit growth has remained around the 6% levels backed by various government schemes which have restricted a further fall.
“We believe such low credit growth was a direct fallout of corporates rapidly deleveraging by repaying high cost loans through funds raised through bond issuances,” said Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
SBI’s analysis shows that top 15 sectors, from more than 1000 listed entities, reported more than Rs 1.70 lakh crore of debt reduction in the pandemic year 2021.
Refineries, Steel, Fertilizers, Mining & Mineral products and Textile alone reduced debt by more than Rs 1.50 lakh crore during the fiscal year gone by. Simultaneously, primary issuance of bonds increased by 9%. This trend is continuing in FY22 also, SBI notes in its report.
“Corporate willingness for new investments remains low currently as the economy is still recovering from the devastating second wave,” said Ghosh. “Against this background, only fiscal policy can rekindle animal spirits at this juncture – monetary policy has little headroom.”
Investment scenario is tepid as gauged by new investment announcements which saw 67% decline in FY21 as per CMIE. However, the same is reported flat as per Projects Today, where new announcements of Rs 10.7 lakh crore were reported in FY21 as compared to Rs 10.8 lakh crore in FY20.
Though in its research SBI noted that it was unable to account for this rapid divergence in numbers in investment announcements, the order inflow position of two infrastructure majors L&T and BHEL declined during last year.
While L&T reported decline in order inflow by around 6%, BHEL reported a decline of 61% (up to December 2020) as compared to FY20. However, Dilip Buildcon, KEC, Kalpataru reported growth in order flow position during FY21, Dilip Buildcon majorly because of orders from Road sector (NHAI) and Kalpataru’ s growth largely driven from orders in T&D business.
Most experts say that credit growth for FY22 is likely to remain in low double digit on the back of the outbreak of the second wave and its impact on the overall economy. As per an analysis by
, incremental credit (April to May) growth for FY22 stood at -0.5% as compared with -1.1% in FY21 and – 0.2% in FY20, which indicates that the incremental growth has been better than last year but is yet to return to normal.