Home Consumer debt Cautious companies cut loans by Rs 1.7 lakh crore amid Covid

Cautious companies cut loans by Rs 1.7 lakh crore amid Covid



MUMBAI: Large borrowers across multiple industries have responded to the Covid crisis by repaying loans and reducing 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 While some companies have withdrawn from investments in the absence of demand, others have moved from lending to the capital market.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.
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“The willingness of companies for new investments remains weak at present, as the economy is still recovering from the devastating crisis. second wave. Investment The 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 interest rate structure and reducing their loan commitments, to facilitate lower funding costs in capital markets.

In addition, the top 1,000 companies increased their liquidity and Bank balance by around 35% in March this year compared to March 2020, suggesting a cautious approach to saving money in uncertain times. Loan repayments by businesses resulted in 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 credit 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) said 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.