Demand for Indian corporate loans softens despite buoyant economy – Kotak Mahindra Bank executive | Tech US News

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MUMBAI – Kotak Mahindra Bank Ltd, India’s fourth-largest private lender, sees demand for corporate credit even as lending conditions to companies improve, a top company executive told Reuters in an interview.

KVS Manian, group president in charge of wholesale banking, institutional and investment banking and wealth management businesses at Kotak Mahindra Bank, said on Wednesday that the credit environment has never been better. But demand from corporate borrowers is still not very strong, he said.

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Indian corporates have significantly deleveraged their balance sheets over the past few years by raising equity and refinancing high-cost debt. This has opened up opportunities for banks, which have seen growth in recent years mostly from retail lending.

Bank credit grew 19 percent year-on-year in the fortnight ended October 20, according to Reserve Bank of India data.

Sector-wise data available till September showed that credit to industries grew by 12.6 per cent year-on-year, with small and medium-sized corporates recording strong growth.

“We are seeing opportunities in sectors like cement, steel, renewable energy, roads and chemicals. In these five sectors, there is some capacity building and hence the demand for credit,” Maniyan said.

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“We are yet to see a secular increase in demand for credit across sectors.”

Lending to small and medium-sized businesses, however, has increased, with the help of the emergency credit guarantee scheme launched by the government during the COVID-19 crisis, which helped stabilize the sector.

Kotak Mahindra Bank lent 140 billion rupees ($1.69 billion) under the scheme with low defaults.

False risk

Banks in India are required to lend a certain percentage of their gross advances to priority sectors such as agriculture and small businesses.

But, Manin cautioned that corporate loans can be mispriced because a large number of banks chase a few opportunities.

“We feel that the market is not pricing credit risk and pricing corporate advances appropriately in the preferred sector of lending.”

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This, he explained, means that even a smaller company, which may be riskier to lend, is able to borrow at a cost closer to that of a relatively high-rated corporate affiliate.

To avoid this, Kotak has expanded its corporate credit book by investing in “credit alternatives” such as commercial paper, bonds and unconverted debentures issued by companies. It has invested Rs 273 billion in such equipment.

“While credit alternatives carry mark-to-market risk, we see any MTM losses as we hold most securities to maturity.”

The collection war

Like other lenders, Kotak focuses on growing deposits, which are growing at a slower pace than credit.

“Deposits will come back in fashion as banks raise deposit rates, especially on term deposits,” Manian said.

“This will mean that the cost of funds will increase and the ratio of low-cost deposits (current and savings accounts) will look weaker as more money will flow into term deposits.”

Menin, however, said this would not necessarily affect the bank’s lending margins as a larger proportion of assets are repricing compared to liabilities. ($1 = 82.7310 Indian rupees) (Reporting by Ira Dougal; Editing by Savio D’Souza)

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