Bank loans to industries get momentum after 21 months

Top bankers expect the momentum to continue, with an increase in demand and the government placing its thrust on infrastructure spending and capacity expansion.

The outstanding amount previously topped Rs 29 lakh crore at the end of March 2020, after which credit disbursal to companies slowed amid economic uncertainties caused by the pandemic.

The outstanding bank loans at Rs 29.85 lakh crore was 3% more than what they were at the end of March 2021, and 7.6% higher from a year earlier, data from the Reserve Bank of India showed. The expansion was largely on account of increased disbursals to micro, small and medium enterprises.

“The after-effect of the third wave of Covid-19 on economic growth was limited, most of the economic indicators are showing improvement which will likely spur consumer spending and encourage companies to build inventories and in turn increase demand for loans to industries,” Punjab National Bank managing director Atul Kumar Goel told ET.

Budget initiatives like Gati Shakti driven by the seven engines of roads, railways, airports, ports, mass transport, waterways and logistics infrastructure will propel credit demand, Goel said.

The sectors that have already shown encouraging signs in credit growth are infrastructure, textile and chemicals & chemical products including fertilisers and food processing. Loans to infrastructure grew nearly 11% year-on-year to Rs 11.4 lakh crore at the end of 2021, while loans to textile rose 11.8% to Rs 2.13 lakh crore. The chemicals & chemical products industry attracted 12.7% higher loans at Rs 1.98 lakh crore.

“Bank loans to industries are expected to grow from here on considering that the economy has started to gradually come out of pandemic-induced stagnation,” said Shanti Lal Jain, managing director of Indian Bank.

“The boost to infrastructure as seen from Budget 2022, the PLI (production-linked incentive) scheme for the manufacturing sector, increase in demand, increase in exports along with the new acquisition announcements of corporate groups are expected to give an impetus to the growth in the loan book of banks,” Jain said.

Banks are also on a stable footing to cater to the likely higher credit demand from companies. Goel said the strong balance sheets of banks with high levels of loan loss reserves, as well as strong liquidity and capital position will complement the fiscal push for growth.