DNA Money Edit: Banks are smiling as credit picks up

Companies increasingly seek bank loans as hardening bond yields have made it difficult for them to raise funds through bonds. The V-shaped recovery of bank credit growth (as per data from April 1, 2016, to June 8, 2018) has surely brought cheers to all stakeholders. After touching a low of 3.72% on March 3, 2017, it has steadily moved up to a healthier 12.68% on June 8.  

Big firms are now seriously scouting for bank funding as the corporate bond market fails to hold its earlier charm. With the one-year government bonds trading at over 8%, the corporate bonds are getting expensive with rates ranging between 8.5-9%. In contrast, banks’ marginal cost-based lending rates (MCLR) at 8.10-8.15% help them raise cheaper funds.

Total bank loans to large industries by May-end were Rs 21.8 lakh crore, growing 1.5%, while medium-scale industry saw a large uptick in bank loans, at 4.1% growth to Rs 1.02 lakh crore. Retail loans grew faster, led by home loans growing at 15.5%. While the consumer durable segment saw a 17% pick-up, high delinquencies in education loans are shrinking the category. Of course, India Inc’s increasing demand for working capital and government’s higher infrastructure spending has also pushed up the demand for bank credit.