Sans capex, loan growth to drop to 12%

Written by fe Bureau | Mumbai | Updated: Oct 13 2014, 06:42am hrs
RupeeThe average ticket size of projects has also been coming off.
With little demand from corporates for credit, Macquarie estimates loan growth in the current year could end up at 12%, the lowest levels since FY97, reports fe Mumbai. Thats assuming the increase in credit flow in H2FY15 is a strong 40% y-o-y, an optimistic number given the current run rate is close to 10%.

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The culprit, of course is capex or rather the absence of it; with hardly any mega projects having taken off in the last three years, demand for loans has been muted. Bankers confirm the pipeline of projects is drying up and with sanctions having dropped 32% in FY14, theres little chance of disbursements picking up. The average ticket size of projects has also been coming off. Moreover, with interest rates elevated, companies will try and borrow in the overseas marketsECB funding jumped 47% in FY14 leaving domestic banks with a smaller share of the business.

Axis Bank reckons capex funding by banks could fall to its lowest in at least seven years; already, the share of capex loans in incremental credit dropped to a multi-year low 31% in FY14.