In an indication of just how little corporate India is investing, sanctions by State Bank of India (SBI) for project finance collapsed to just over R2,000 crore between April and August this year. That?s less than a 10th of the amount sanctioned by the bank in the corresponding period last year.
The investment climate may have improved slightly in September, say bankers, but appetite for capex loans remains nonetheless very poor; in SBI?s case, the amount of long-term finance approved in the first six months of 2012-13 is way below the R30,000 crore sanctioned in the first half of FY12.
?There is definitely a slowdown in sanctions of project finance since many projects have been held up for want of approvals. Moreover, new projects are simply not coming up,? SB Nayar, deputy managing director and group executive (corporate banking), told FE. Apart from delays bogging down projects, Nayar also attributed the poor offtake of project finance to companies not being able to tap equity markets for capital to fund their ventures. What?s also keeping corporates from making fresh investments is the high cost of money. ?Since most projects are now housed in SPVs, which are mostly unrated, the interest rate charged is relatively high and that makes a difference when the size of the investment is large,? Nayar said.
Bankers have been talking for some time now of how little fresh demand there is for long-term loans, pointing out that most disbursements relate to sanctions made in previous years. Chanda Kochhar, MD& CEO at ICICI Bank, observed last week that most of the money being lent to corporates was in the nature of working capital rather than project finance. Bank of Baroda chairman MD Mallya too confirmed falling appetite for long-term credit, saying sanctions were nowhere near the levels seen in 2010. Loan growth to corporates and individuals has increased by just over 2% between April and September this year.
Capex, based on projects sanctioned by banks and financial institutions, is estimated to have dropped to just R50,000 crore in FY12, about a fourth of the levels seen in FY10, according to a Kotak Institutional Equities study.
Consequently, the brokerage anticipates an investment cliff ? a potential decline in investments in 18-24 months.
That companies are reluctant to add capacity in an environment in which the supply of key inputs is not assured and approvals are being delayed for one reason or another, has been evident for some time now. CMIE data show that the average quarterly rate of new investments in the September, 2012 quarter was $ 40bn, 38% lower y-o-y and similar to levels seen in 2005. Moreover, the number of stalled projects continued to inch up accounting for 6% of projects outstanding versus 3% a year ago. Commenting on the trend, analysts noted that the concerns on order inflows and revenue momentum of companies in the capital good sector persist. On Monday, capital goods behemoth BHEL reported a sequential fall in oustanding orders to Rs 1.22 lakh crore at the end of September were Rs 1.22 lakh crore from Rs 1.33 lakh crore at the end of June, 2012.
