New Delhi, December 31: The corporate credit offtake from banks would remain limited at least in the near term, considering a subdued demand, analysed India Ratings and Research (Ind-Ra).

It further added that this would support Indian companies to deleverage to a certain extent; however, their ability and the degree of deleveraging would continue to be constrained by stressed corporate earnings which may remain below average in the near term.

According to Ind-Ra the banking system’s lacklustre credit growth has more to do with the lack of credit demand rather than credit availability. The banking system is now well capitalised, unlike recently. In this connection, the weak credit offtake is likely to exacerbate the current slowdown in terms of intensity and recovery time.

The ratings agency said overall non-food credit growth for scheduled commercial banks remained weak in October 2019 at 8.3 per cent year-on-year (y-o-y), down sharply from 13.4 per cent y-o-y in October 2018 and marginally up from 8.1 per cent y-o-y in September 2019.

At a more granular level, growth in the retail segment remained strong at 17.2 per cent y-o-y (September 2019: 16.6 per cent y-o-y; October 2018: 16.8 per cent y-o-y. Further growth in retail loans contributed nearly 53 per cent to the incremental growth in scheduled commercial banks’ credit during in October 2019.

Annual credit growth in the agriculture and industry sectors remained largely stable at 7.1 per cent and 3.4 per cent, respectively, during the month. However, the weakness in credit growth has intensified in the services segment at 6.5 per cent in October 2019 from 27.4 per cent in October 2018.

On a sub-sector basis within the services segment, the agency found that funding to key contributing sectors such as NBFCs and other services had seen a sharp slowdown in October 2019 in comparison to October 2018. NBFCs, which contribute about 30 per cent to the services segment saw a credit growth slowdown at 26.8 per cent in October 2019 from 55.6 per cent in October 2018. Other services segment with a contribution of about 23 per cent to the services segment saw a credit growth slowdown at 12.7 per cent y-o-y in October 2019 from 35.6 per cent y-o-y growth in October 2018.

The agency obsrved that unlike in the past, the banking system is well capitalised with both private and public sector banks ready to push the system credit growth. Specifically on the public banks side, while capital availability is no longer a challenge, the ongoing amalgamation will keep the focus of the banks involved away from credit growth in the near term. On an overall basis, a weak economic sentiment resulting in lack of new project announcements along with the sharp slowdown seen in the NBFC sector resulting from the ongoing challenges on liquidity are likely to keep the credit growth expectations muted for the banking sector in the near term.

The muted demand for loan is largely explained by the absence of capex. Secondly, with the increasing risk averseness in the system, the credit is made available to borrowers with strong credit metrics and also at a reasonable price. However, need for credit by those entities is relatively less either because of their strong balance sheet or other alternative sources (ECB, FCCB or domestic bond market).