Caution because reduced loans of Rs 1.7L cr in the middle of Covid

Mumbai: Major borrowers from several sectors have responded to the Covid crisis by repaying their loans and reducing their debt. While some companies have withdrawn from investments in the absence of demand, others have moved from lending to the capital market.
Companies in the petroleum, steel, fertilizer and cement sectors are among those that significantly reduced their borrowing during the year. According to an SBI research report, the top 15 sectors, among more than 1,000 listed entities, reported a debt reduction of Rs 1.7 lakh crore in fiscal year 21. In percentage terms, the sectors fertilizers, cement products, consumer durables and capital goods reduced their reliance on bank loans by more than a fifth during the year.
“Business willingness for new investment remains weak at this time as the economy is still recovering from the devastating second wave. The investment scenario is lukewarm, as evidenced by the new investment announcements which recorded a drop of 67% in fiscal year 21 according to CMIE, ”the report said. He added that companies were taking advantage of a low-term structure of interest rates and reducing their loan commitments, to facilitate lower financing costs in the capital markets.
In addition, the top 1,000 companies increased their cash flow and bank balances by around 35% in March of this year compared to March 2020, suggesting a cautious approach to saving money in uncertain times. . Loan repayments by businesses led to a marked slowdown in credit growth in FY21.
According to RBI data, the slowdown in credit growth continues well into FY22. As of April 23, non-food credit was down 0.8%. This year again, the biggest drop is due to a drop in loans to the oil industry (-8.6% over one year) and to the steel industry (-6.8%). In FY21, bank lending did not turn negative due to growth in mortgage lending, loans to agriculture and related sectors, and trade finance.
Recently, in an interview with TOI, SBI Chairman Dinesh Khara said companies have become risk averse. He also said that the use of existing capacity was low. “The use of working capital is only 70%, which means they have room to borrow,” he told this newspaper.
A report released by CRIF with the Small Industries Development Bank of India (Sidbi) indicated that the total amount of credit used by the sector in December 2020 was Rs 1.6 lakh crore, which saw a drop of nearly 20% year-on-year. This is due to the suspension of manufacturing activities the day after the Covid containment in March 2020.

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About Christopher Easley

Christopher Easley

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