Corporate borrowings to fall: Report
“Given that the corporate sector in India remains over-leveraged and needs to de-leverage, a revival in corporate capex demand in the near term seems unlikely. Consensus forecasts for the top 50 borrowers (accounting for 27 per cent of bank corporate loans) indicate their aggregate borrowing growth will drop to single digits next year from 21 per cent in 2012,” a Credit Suisse study said.
Historically, corporate loan growth has been strongly linked to the investment cycle with the pick-up in credit for FY05-08 coinciding with the boom in investment, it said. However, after peaking in FY10, new project sanctions have trended down over the past three years, with FY12 witnessing the sharpest drop at 46 per cent.
“We believe the impact of this on loan demand would be visible from the current year as past sanction drawdowns exhaust” it said. Loan demand in India is primarily wholesale-driven (69 per cent of bank loans). The easing in interest rate cycle and increased focus on the retail segment is expected to boost the retail growth pace, “but would not offset demand slackness”.
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