DNA Money Edit: Any delay in kick-starting investments will hurt banks

The slowing bank credit growth is turning out to be a grave issue for India's banking sector as it faces a steep hike in provisioning requirements for loans being referred to the bankruptcy courts. The latest Reserve Bank of India (RBI) data showed that bank credit inched up by an insignificant 5.1% during 2016-17 amid a steady rise in corporate bond issuance and cheaper non-bank fund sources coupled with overall credit aversion in the economy as well as non-investment by the private sector in capacity expansion.

According to a report by SBI Research, the record low bank credit growth was led by the top 1,000 listed corporates (excluding banks & finance companies), which saw their net loan outstanding decline by a whopping Rs 1 lakh crore in 2016-17.

The report said one-third of this massive contraction was led by just 10 companies, which cumulatively availed of Rs 33,571 crore less in the year over the previous year. The outstanding loan funds increased to Rs 26.5 lakh crore in 2016-17, up from Rs 24.2 lakh crore reported in 2015-16. But many large corporates reported contraction in loan funds outstanding in 2016-17 over the previous fiscal.

The lower debt utilisation levels of India Inc have begun to pinch the banks. Most big companies are prepaying their loans through internal accruals or through asset sales. They are also raising funds through Qualified Institutional Placement (QIP) of equity shares or sale of shares to private equity players. It is high time the government devise ways to kick-start investments in various sectors so that banks can come back on track.