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Rise in Indian corporate lending signals new investment cycle
November 21, 2022
Indian lenders are expanding lending to local corporations at the fastest pace in more than eight years, a sign of a new private investment cycle starting in the world’s fifth-largest economy even as growth in large developed economies and China slows.
That international slowdown will limit the strength of the new Indian cycle, economists say.
Private investment in India was constrained for years by heavy indebtedness of companies and banks and by weak demand. But over the past two years, corporations and lenders have cut costs and raised equity capital, and companies have been able to spend on new capacity as demand has strengthened.
It has strengthened so much that productive capacity and working capital are now being used more intensively. That, in turn, is driving the higher demand for credit, said Swaminathan Janakiraman, managing director at India’s largest lender, State Bank of India (SBI).
“The capex that is taking place is generating financing requirements across the industry and the services sector and to a small extent there is a shift in borrowings from bonds to loans,” said Swaminathan. “Corporate credit demand has been low for too long and it is time for a pick-up.”
SBI expects its stock of corporate loans to rise by between 14% and 15% this year and by 12% a year on average in 2023 and 2024.
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