Bankers expect revival of corporate loans amid debt slashes

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Bankers are expecting a revival in corporate loan growth as the economy is opening up, making a strong business case for capital expenditure.

The Economic Times reported that bank credit to industry had remained muted, falling 1.7% in the year to date with companies slashing debt and harnessing existing capacities in a demand environment made uncertain by the pandemic.

Asset heavy industries such as industrial metals, metal products, iron and steel, construction and cement had resorted to harness cash flows to improve balance sheets, instead of adding more debts.

According to the latest data from central bank, chunky industrial loans which make up about 30% of non food credit, have witnessed lukewarm demand so far in 2021, underscoring a trend among companies to conserve cash, and deleverage as much as possible.

However, retail credit demand has expanded through the periods of episodic lockdowns and curbs on mobility. Both analysts and bankers believe that credit demand will now pick up as companies invest for the next cycle of growth.

Nomura gives positive outlook on demand for loan

In a report published earlier this month, Japanese investment bank Nomura said growing optimism and abundant liquidity should boost loan demand.

It also said that banks are expected to see an improvement across the board when it comes to demand through Q1 2022. The optimism levels for loan demand are highest for retail loans, followed by manufacturing and services. Demand for infrastructure loans are still lagging.

The simultaneous rise in loan demand and easing of loan supply conditions suggest that credit growth should eventually pick up, it added.