Lower debt market rates crimp bank loans

Cheaper money market rates are denting bank loans with companies scrambling to the debt market rather than going for traditional bank funding.

Bank credit continues to decelerate even in the ongoing second quarter, which is supposed to be a busy season for the offtake of bank loans.

The year-to-date (from March 31 to July 21) gross bank credit is at Rs 69.45 lakh crore, 2.7% lower than it was on March 31, 2017, when it was Rs 71.34 lakh crore, according to the Reserve Bank of India (RBI) data.

The large and medium companies are not making investments both in brownfield and greenfield projects and are borrowing increasingly from the money market. According to the RBI data, companies borrowed Rs 84,590 crore through commercial paper from the debt market at 6.02% to 11.97% for the fortnight ended July 15, 2017, to meet their working capital needs.

With the base rate of banks between 8% to 9.5%, there is a 2% difference between bank finance and money market funds.

Ashutosh Khajuria, executive director, Federal Bank, said, "The year-to-date figures for both credit and deposit are decelerating. Companies are raising money from the money market, and banks are tackling the bad loan problem."

The large companies saw a deceleration of 1.7% to Rs 21.68 lakh crore, the medium-scale industry saw a deceleration of 4.1% to Rs 10.05 lakh crore and the micro, small and medium industries saw a deceleration of 2.8% to Rs 3.5 lakh crore. The commercial real estate loans, which were the high yielding loans for banks, also saw a sharp deceleration of 4.4% to Rs 1.7 lakh crore with new policy reforms like the Real Estate Regulatory Authority (Rera) impacting the sector and insolvency proceedings against companies like Jaypee Infratech by IDBI Bank and Amrapali Group of companies by Bank of Baroda.

However, the sharpest deceleration of bank credit is seen to the shipping and NBFC sectors. Bank loans to the shipping sector decelerated 4.6% to Rs 7,200 crore and to the NBFC sector by 13.7% to Rs 337,500 crore. Local ship-owners have recently sought RBI backing to restructure loans as ships are not considered to be projects to qualify for loan restructuring like the infrastructure sector. The ship owners' association has been asking for an infrastructure status for the sector so that they are also able to avail of long-term project loans.

NBFCs are taking advantage of the cheap money market funds to keep their costs low. According to the Prime Data Base, NBFCs are on course to borrow $36 billion via bonds during the calendar year 2017 after a record borrowing of Rs 2.4 lakh crore from the debt market in 2016.

Even on the personal segment, which consists of home loans, vehicle loans, personal loans credit cards education and credit cards, there is a sharp fall in the pace of growth. The personal loan segment grew just 2.8% from March 2017 to July 2017 to total outstanding of Rs 16.65 lakh crore, home loans grew 0.4% to Rs 8.6 lakh, education loans were flat at Rs 56,800 crore, vehicle loans grew 1.2% to Rs 42,240 crore, credit cards grew 8.9% to Rs 56,800 crore during the financial year.