Corporate credit demand may stay muted

A massive cut of 0.85-0.90% is lending rates is expected to spur demand for bank loans. However, the demand for corporate credit is expected to be muted as capex cycles of Indian companies have peaked and many projects are nearing completion, according to rating agencies.

The investment intentions of both companies and the government remain muted, they said.

Moody's Investor Service said in a report that capex cycle for Indian corporates has peaked as projects near completion, and declining investments will slow the pace of borrowing over the next 12-18 months.

Moreover, refinancing needs are manageable for most companies in 2017, given their better access to the capital markets and large cash balances.

Bankers are betting on lending rate cuts to revive credit growth and revive the economic growth in the country.

Arun Tiwary, chairman and managing director, Union Bank of India, told DNA Money, "Lending rate cuts have indeed come at an opportune moment, with housing prices witnessing some correction of late. Buyers' incomes have risen post the Seventh Pay Commission. Likewise, the investment demand should also benefit with financing costs coming down for companies."

While some sectors look stable, others such as real estate may take a while to revive.

"As for specific sectors, our outlook for power, hotel and sugar industries is stable, while that for the real estate and cement sectors is negative," said Subrata Ray, senior group president and head of research at Icra, said in a report.

The Centre for Monitoring Indian Economy (CMIE) said in its report that database for October-December quarter shows that new investment intentions moderated both in terms of value and volume. In volume terms, both government and private sector project intentions fell to a one-decade low. The bulk of the fall was in the real estate, logistics, hotels & tourism, electricity and mining.

Others believe that global events will influence the growth in the country. In fact, an analyst at Bank of America (BofA) thinks that the cuts in lending rate will be key to reviving growth in the economy.

BofA said in a report, 'We continue to point out that lending rate cuts have a far more immediate impact on recovery than say, passage of Goods Services Tax or the Bankruptcy Code. On the positive side, as expected, banks have begun to cut lending rates. We see 0.50% to 0.75% of bank lending rate cuts by September that should cushion the demonetization shock in the second half of 2017."

Arundhati Bhattacharya, chairman of SBI, said in a press conference while launching banks' special home loans, "Our immediate concern is to kick-start the economic activity through the lending rate cuts. The push on housing will have a cascading impact on a number of other industries."

Analysts expect the non-performing assets to be lower and the lower rated companies will also be able to enjoy cheaper refinance opportunities.

Kotak Institutional Equities, a division of Kotak Securities, said in a report, "Slippage ratios should decline further in the third quarter ended December 31, 2016, as key portfolios have already taken a fair bit of pain, high treasury income should give adequate comfort to banks to lower headline non-performing ratios by making higher coverage/writing off of loans. Lower rated corporates are also expected to benefit from loan refinancing opportunities due to the fall in benchmark rates. However, we expect P&L benefit to be lower as most banks continue to focus on improving provision coverage ratios. Axis Bank stands out due to expected weakness in asset quality leading to high provisions."