Tuesday, November 24

Loans to medium-sized firms and lending against shares clock double-digit growth

MUMBAI: Government measures and a healthy stock market have helped two sectors record double-digit loan growth in the first half (April-September) of this year, amidst the COVID-19 pandemic-induced economic slowdown. Loans to medium-sized industries and loan against shares posted a growth of 13.6 per cent and 18.6 per cent, respectively, at a time when most other sectors saw credit contract.
Fresh loans to medium sized enterprises were up Rs 14,612 crore between April and September this year, clocking a growth of 13.6 per cent, the latest data on sectoral deployment of bank credit released by the Reserve Bank of India shows.

“Much of the growth in loans to the medium sized firms is likely due to the government’s stimulus package to this sector,” said Karthik Srinivasan, head of financial sector ratings at Icra. It is likely that a few top rated enterprises have benefitted from the government schemes.

The impact of government’s Emergency Credit Line Guarantee Scheme (ECLGS) scheme under the “Atmanirbhar Bharat Abhiyan” to boost resurgence of MSME sector on lending to this sector is clearly visible, according to a report by Transunion Cibil. “The number of loan originations have accelerated in June 2020 due to deployment of funds under this scheme,” it said.

Private banks have shown a higher growth momentum by contributing over 50 per cent of incremental credit to the MSME sector over the last two years, according to the Transunion Cibil report. The MSME sector has seen an increased level of NPAs in the last two years consequent to a slower rate of economic growth. Cash flows of MSMEs have been impacted over a period of time largely due to the economic slowdown, thereby limiting their ability to service debts.

Loan against shares and bonds rose Rs 931 crore, or up 18.6 per cent, during the period. In addition, the only other segment to post a double-digit growth was loans to state sponsored organisations for scheduled caste and scheduled tribes which rose 32 per cent during the period with an exposure of only Rs 515 crore as of September 2020.

Loan against shares is a cheaper option to borrow, as compared to unsecured lending as there is a collateral comfort for the bank, especially since the market started picking up after April. “Such borrowings are linked to the performance of the stock markets which went up during this period,” said a financial market analyst. The amount eligible for loans to an individual is also higher when prices rise.

Unlike home loans or vehicle loans where an individual borrows to buy an asset, these loans are mostly for consumption needs, especially in the current situation.

Credit: Stocks-Markets-Economic Times

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