The record low bank credit growth of 5.1 per cent in FY17 was led by the top 1,000 listed corporates which saw their net loan outstanding decline by a whopping Rs. 1 trillion in the reporting year, said a report. One-third of this massive contraction was led by just 10 companies, which cumulatively availed of Rs. 33,571 crore less in the year over the previous year, according to the report by SBI Research.
According to SBI chief economic adviser Soumya Kanti Ghosh, who penned the report, this could either be perceived as lower debt utilization levels or prepayment through internal accruals or through asset sale. Other reasons could be QIP or private equity participation. The RBI data showed that bank credit inched up by a tad 5.1 per cent in the year to March 2017, which was the lowest since 1951 when it had grown by a paltry 1.8 per cent which could be attributed rise in bond issuance and cheaper non-bank fund sources coupled with overall credit aversion in the economy as well as non-investment by the private sector in capacity expansion.
However, taken as a whole, results of about 3,000 listed entities for FY17, there was an 8 per cent increase on a CAGR basis in loan funds outstanding over FY15. The outstanding loan funds as of FY15 stood at Rs. 22.8 trillion, which increased to Rs. 26.5 trillion in FY17. This was Rs. 24.2 trillion in FY16.
However, many top notch corporates reported contraction in loan funds outstanding in FY17 over FY16. "About 1,000 entities in aggregate (excluding banks & finance companies) reported decline in loan funds to the extent of Rs. 1 trillion crore," said Ghosh.
Debt contraction can either be through repayments, equity conversion or restructuring he says adding "top ten entities saw a decline of about Rs. 33,000 crore." Some of the best-known companies that have lowered loan funds include Gail India (-48 per cent), Piramal Enterprises (-37 per cent), National Fertilizers (-37 per cent), L&T (-24 per cent) Hindalco (-20 per cent) and Jet Airways (-22 per cent). Cumulatively, these companies alone borrowed Rs. 20,000 crore less, said the report.
From a sectoral point of view, this came in amidst a double-digit annual growth in EBIDTA by most of the top 10 sectors depicting all round growth in top-line, midline, and bottom-line. About 1,000 entities (excluding banks & finance) saw a steep Rs. 1,00,710 crore decline in loan funds, while the top ten entities' loan funds decline by Rs. 33,571 crore which is 33 percent of the aggregate reduction in loan funds for all.
Hinting at a continuation of the same deleveraging trend in the times to come, the report points to the Tata Group is identifying non-core businesses for divestment. The group is in the process of selling drug discovery services company Advinus Therapeutics. Its fertilizer business may also be up for sale along with Tata Ceramics, Tata Business Support Services, Tata Asset Management and Tata AutoComp Systems.
Other reasons for lower loan demand may come from operational and financial restructuring, repayments, equity conversion by lenders, etc., said the report.