With commercial banks frowning at the low 5 percent credit and blaming it on weak industrial activity, HDFC chairman Deepak Parekh said this should not be viewed negatively as corporates are deleveraging on one hand and are raising money from the debt market on the other.
“Credit offtake of 5 percent should not be viewed as a negative because there are number of things that go into credit offtake. Look at the deleveraging that is taking place among in the industry.
“I can give you an example of dozens of large corporates who have sold their assets and have paid pack their lenders with inflows from foreign direct investment. So, its deleveraging that is reducing banks’ outstanding credit,” Parekh told the India Today Conclave here.
Citing the examples of Essar selling its refinery to Rosneft of Russia, DLF selling its assets to GIC of Singapore, or GVK sale to Fairfax as the clear example of deleveraging, Parekh said in the last one year alone, nearly USD 40 billion worth of deleveraging has happened in the domestic industry.
Parekh said another reason for lower credit growth is that industries are accessing the bond markets in an unprecedented manner where the rates are much cheaper than what bank loans, to meet their fund working capital requirements.
“Companies are now accessing the bond markets directly, bypassing the banks. Transmission of interest rates is immediate in the bonds market compared to banking. FDI would be the highest so far that again goes to reduce the debt,” he said.
As per the latest RBI data, India Inc borrowed only Rs 98,440 crore from banks in the first nine months of fiscal 2017, while they raised Rs 1.8 trillion from overseas in the same period. Out of this, Rs 96,294 crore were through ECB route, and rest Rs 11,500 crore came in through masala bonds.
He said lower raw material prices are also resulting in weak credit offtake.
“Oil credit was a huge amount in the banking sector but now that has come down very significantly following the crash in crude prices,” he said.
On the talks about a national bad bank, he suggested it should be piloted with one or two banks only. “Bad bank cannot be for the system. It could be piloted with one or two banks to put their loans in the bad banks to begin with,” he said.
Parekh said both the Reserve Bank and the finance ministry are working with the Bank Bureau Board at different ways and methods of trying to contain the NPA problem, which has crossed 15 percent in the current fiscal year.
He also hoped that some progress would be achieved on the NPA front this year itself. Media reports said banks have lined up as much as Rs 20,000 crore worth of bad loans to be sold to ARCs in the current month alone.