Cos offloading debts impacts credit growth

Mumbai FY21 is an outlier in India's financial system with the onset of pandemic. One direct corollary of pandemic in FY21 was a distinct slowdown in bank credit growth that has also continued into FY22.

"We believe such low credit growth was direct fallout of corporates rapidly deleveraging by repaying high cost loans through funds raised through bond issuances," says a report by SBI's research arm, Ecowrap.

The analysis shows that top 15 sectors, from more than 1,000 listed entities, reported more than Rs 1.70 lakh crore of debt reduction in the pandemic year 2021. Refineries, Steel, Fertilizers, Mining & Mineral sectors and Textiles alone reduced debt by more than Rs 1.50 lakh crore during FY21. Simultaneously, primary issuance of bonds increased by 9 per cent. This trend is continuing in FY22 also.

Interestingly, corporate willingness for new investments remains low currently as the economy is still recovering from the devastating second wave. Investment scenario is tepid as gauged by new investment announcements which saw 67 per cent decline in FY21 as per CMIE. However, the same is reported flat as per Projects Today, where new announcements of Rs 10.7 trillion were reported in FY21 as compared to Rs 10.8 trillion in FY20.

"We are unable to account for this rapid divergence in numbers in investment announcements," says Soumya Kanti Ghosh, chief economic advisor of SBI. However, it is true that order inflow position of two leaders L&T and BHEL declined during last year. While L&T reported decline in order inflow by around 6 per cent, BHEL reported a decline of 61 per cent (up to Dec'20) as compared to FY20. However, Dilip Buildcon, KEC, Kalpataru reported growth in order flow position during FY21, Dilip Buildcon majorly because of orders from Road sector (NHAI) and Kalpataru's growth largely driven from orders in T&D business.

Against this background, only fiscal policy can rekindle animal spirits at this juncture –monetary policy has little headroom.