Banks have turned extremely cautious about lending to companies and that is clear from the growth in their wholesale portfolios.
As banks continue to shy away from wholesale lending, growth in bank credit to the services sector slowed to 7.3% year-on-year (y-o-y) in September 2019 from 24% a year ago. In other words, lending to services firms grew at a slower pace than overall non-food credit, which grew 8.8% year-on-year during the fortnight ended September 27.
Data released by the Reserve Bank of India (RBI) on Thursday showed that outstanding bank loans to services firms stood at Rs 23.62 lakh crore on September 27, up from Rs 22 lakh crore on September 28, 2018.
Much of the slide in credit growth came from a slowdown in professional services, bank lending to which grew a mere 6% y-o-y in September this year, against 24% in the comparable period of 2018.
Other laggards were trade (down to 5.5% from 10.8%) and non-banking finance companies (down to 30.5% from 14.5%). Loans to software companies fell 6% y-o-y in September 2019, compared with a 6% growth in September 2018. A miscellaneous category which the RBI calls ‘other services’ saw lending drop nearly 15% y-o-y. In September 2018, this category had recorded a 38% y-o-y growth in bank credit.
The manufacturing industry turned in relatively better numbers, with bank credit to this segment growing 2.7% y-o-y in September 2019, up from 2.3% a year ago. For the last few years, services companies were holding up wholesale credit numbers for banks, but the ongoing slowdown in the economy may have caught up with the sector, the latest data show.
Banks have turned extremely cautious about lending to companies and that is clear from the growth in their wholesale portfolios. In the quarter ended September, State Bank of India’s (SBI) corporate loans grew just 2.78% y-o-y to Rs 7.66 lakh crore.
ICICI Bank, which recorded a 7.3% y-o-y growth in corporate loan book during the same quarter, said it would focus on fee income from its corporate clients. “On the corporate side, the focus is not just on plain lending. No, it is on growing float income through payment and collection business, growing fee revenues through FX (foreign exchange), derivative, transaction banking,” Rakesh Jha, chief financial officer, ICICI Bank, told analysts after its Q2 results.