Credit growth is likely to come down to 2.6% in 2013-14 compared to 10%-11% level seen over FY07-11
Based on recently released corporate capex data from RBI, trends continue to be weak for the Indian banking system, observes Nomura Financial Advisory and Securities (India) Private Limited. Based on its FY14F capex estimate, credit growth is likely to come down to 2.6% compared to 10%-11% level seen over FY07-11 (see figure below).
Nomura does not expect overall system credit growth to clock higher than 14.5% reported for FY13, although there could be some upside from stronger rural credit demand and some shift from corporate bonds to loans. Even data from SBI's (State Bank of India) project finance SBU (strategic business unit) point to subdued quantum of sanctions and disbursals related to project finance (see table below).
According to Nomura, politically sensitive states like Odisha and Andhra Pradesh account for about 33% of all loans sanctioned in FY13 (compared to 11% in FY12) (see figure below).
Nomura analysts point out that the capex mix indicates increasing risk profile. The proportion of greenfield projects in annual sanction has risen to 84% for FY13 versus an average of 65% over FY07-11, while capex related to diversification/expansion of existing projects has dropped to Rs312 billion for FY13 from a peak of Rs1.4 trillion in FY10. This could lead to increase in project delays and related restructuring. Troubled sectors like power and metals continue to account for a large share of new project sanctions (68% of overall amount for FY13 compared to 59% for FY12). Please see the chart below on greenfield projects versus others on annual capex sanctions:
Finally, Nomura observes that the annual capex estimate for FY14F is down 42% y-y as per RBI data. For FY13, while overall project sanctions totalled Rs1.96 trillion (a marginal 2.5% y-y increase over the amount sanctioned in FY12), the estimated capital expenditure done per year has continued to fall. For FY13, the amount of aggregate capex (based on all previous sanctions) was down 28% y-y and for FY14F this amount is estimated to fall a further 42%, assuming nothing is added to the pipeline over the rest of this fiscal year.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
