Capital expenditure financed by banks and financial institutions (FIs) rose for the first time in six years in FY16, data released by the Reserve Bank of India show. Banks and FIs financed 352 projects worth Rs 95,400 crore in FY16 as compared to 326 projects worth Rs 87,300 crore in FY15.
Despite this 9.3% (y-o-y) rise in FY16, capex financed by banks and FIs was a long way off the Rs 5.56 lakh crore financed by them in FY10. While 41.6% of this sanctioned amount or Rs 39,700 crore was planned to be incurred in FY16 itself, 30.9% or Rs 29,500 crore was to be spent in FY17, the central bank revealed.
Though optimistic, analysts aren’t entirely convinced if this represents a big reversal in trend. “Perhaps somewhat of a positive, the total sanctions by banks/FIs have shown an improvement in trend towards newer projects both in number of projects as well as value of the project. A sustained trend in this direction should help improve sentiment and bank loan growth over the longer term,” analysts at Jefferies noted. They also pointed to the fact that the majority of these new sanctions are for projects of very low ticket size.
According to the RBI, while the power sector was by far the most dominant sector accounting for 56.7% of the fresh sanctions, roads, bridges and waterways; textiles; ports and airports; and storage & pipeline sector each accounted for at least 4% of the new sanctions in FY16 and saw their share rise as compared to the previous year.
While banks’ and FIs’ funding of capex saw a rise, the amount companies raised through ECBs and foreign currency convertible bonds (FCCBs) declined for the third successive year in FY16. While 314 companies contracted ECBs/FCCBs worth Rs 38,800 crore in FY16, 478 firms had contracted Rs 57,200 crore in FY15 to fund their capex, the RBI data revealed.