While bank credit growth is in excess of 17%, overall funding that included bonds and CPs climbed 13%.
With non-food credit climbing more than gross systemic credit, it is becoming apparent that borrowers are moving away from CPs and bonds to bank financing.
“With forecasts of policy rate hikes already at a steep 250 basis points, we worry that this might impede aggregate growth and reduce discretionary consumption,” said Punit Bahlani, equity research associate, Nomura. “A sharp decline in commodity prices would also result in less working capital needs. Given the overall macro headwinds, private sector capex is unlikely to show up in a hurry.”
One basis point is 0.01%.
The benchmark 10-year yield is hovering around 7.3%. Interest rates at the upper end for CPs raised to meet working capital needs, where tenors range from a week to a year, have climbed to as high as 13%. But even in the rising interest rate scenario, a commercial bank’s marginal cost-based lending rate (MCLR) for comparable tenor is less than 9%.
Bank lending spreads have bounced back, as the 190-basis point repo rate increase flows through. Lending rates on new loans continue to increase, up 18 basis points in November 2022. Lending rates on new loans are now up 123 basis points since March 2022.
