No signs of bank credit pick-up as cos prefer bonds

Banks are going to wind up the financial year on a dismal note with the credit growth hovering at a dismal 4.8-5%.

The credit growth continues to be tepid with companies turning to the commercial paper and the corporate bond market to raise money for its working capital needs. Reliance Jio, HDFC, HDFC Bank, Hero Cycles and Sundaram Finance are some of the companies raising money at rates much lower than the bank lending rates. The public sector undertakings like Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) are also raising funds through bonds.

A senior treasury head of a public sector bank said, "Reliance Jio has been raising short-term commercial papers of two to three months at very fine rates of 6.38%. With money markets so fine, companies find it cost effective to raise money from the market. With excess liquidity, the money market rates have fallen."

Arundhati Bhattacharya, chairman of SBI, told DNA Money last week, "Bank credit is picking up from certain sectors such as the road sector and other public utilities, but a broad-based demand is still not available."

On Tuesday, some banks like HDFC Bank and Vijaya Bank were also seen raising certificates of deposits (CDs), bonds raised by banks. "HDFC Bank raised Rs 2,500 crore of CDs from the market," said a treasury official of another public sector bank.

Outstanding commercial paper is about Rs 3,72,670 crore as on February 28, 2017. For the fortnight ending February 28, 2017, companies issued commercial paper worth Rs 77,230 crore, according to the Reserve Bank of India data.

The major investors into the commercial papers are bank which have surplus cash. "So the credit book of the banks are shifting from the credit book to the investment book, " said a banker.

The sectoral deployment of credit released by the Reserve Bank of India on January 20 (released with a month's lag on February 28) showed that non-food credit grew 3.5% and of this, the industrial credit declined further to 5.1%, lower than the December 2016 numbers when bank credit declined 4.3%. Bank credit for the small and medium scale industries came down 8% and retail growth continued to loose steam growing 12.9%, lower than the 18% to 19% it had reported in the same time last year.

Credit information company, Cibil said in a study released on Monday that while consumer demand for credit has largely rebounded, loan originations have been impacted by the demonetization, with aggregate credit granted dropping 12% in November 2016 compared to November 2015. This trend continued in December 2016, with loan originations down by 13% compared to the same month the prior year. Public sector banks have shown the largest decrease in loan originations among major lender types, down by over 50% in December 2016 compared to December 2015.