Corporate Grapevine     

Published: February 28, 2025
Updated: February 28, 2025

India Inc shy of bank loans

Despite several reminders from the political leadership, Indian companies are not investing in new capacities, which is reflecting in reduced demand for loans. Corporate capex-led demand for loans appears to be quite limited. The deceleration in loan growth now has lenders engaged in liability-side challenges and weaker demand for loans.

At the same time, banks are seeing significant stress in products that serve the bottom half of the income pyramid, like microfinance loans. Banks have tightened their credit filters for some time now, especially in products such as unsecured loans. Analysts believe that much of this stress may have flowed through and is now behind them. But till the large-ticket capex loans do not come back from India Inc, the country’s economic growth projection of 8 per cent will remain a pipe dream.

CORPORATE CAUTION

In a recent event hosted by financial firm Kotak, the overall mood among corporate India was largely cautious following the stock market crash. However, there were some exceptions like residential real estate, hotels, renewable energy, hospitals and airlines. Banks were cautious on the outlook for loan growth and/or net interest margins, given the weak demand environment and tight liquidity situation, but in general most banks highlighted that asset quality was not a broad-based concern as yet. Life insurance companies were also relatively optimistic that the worst of the industry’s woes were behind them (Covid claims, regulatory issues) and that the low penetration in India gave large incumbents a long runway for growth.

Consumer-oriented companies remained cautious about the near-term outlook, given the weakness in urban consump tion and the slow recovery in rural demand. Companies catering to high-end consumption segments like luxury hotels, residential property and airlines were relatively more optimistic as demand for Rs 150 crore apartments continues. IT services firms mentioned that they were not seeing a pickup in discretionary spending yet, but the recent rupee depreciation would help earnings growth to some extent.

PHARMA’S TAKE

Pharmaceutical companies said the worst of the pricing pressure in the US generics market was behind them, but the impact of the proposed Trump tariffs was creating uncertainty. Hospital companies were quite positive about the demand environment and not worried about the increase in capacity by many hospital chains. Capital goods’ companies were expecting some modest uptick in order inflows in FY26 as government spending picks up from April 1, but most were not seeing any broad-based recovery in private capex as yet. Most agro-chemical companies did not have any visibility on demand recovery in the near term.