West Asia conflict drives 15-20% rise in corporate working-capital demand at banks

Banks see working-capital demand surge as West Asia conflict pushes up costs

Mid- and large-sized companies have seen working-capital requirements increase 12-15%, and in some cases by as much as 20%, as higher oil-linked input costs and longer transit times stretched cash-conversion cycles, increasing funding requirements on both the purchase and sales sides.

"Working-capital demand is picking up as the West Asia conflict has elongated working-capital cycles for Indian corporates," said Anu Aggarwal, president and head of corporate and transaction banking at Kotak Mahindra Bank. "For several companies, working-capital requirements have increased by at least 12-15%, and in some cases by as much as 20%. Raw-material prices, particularly oil-linked inputs, have risen, while transit times have lengthened on both the purchase and sales sides. In some sectors, the increase has been significant,"

The increase in short-term borrowing requirements has added momentum to corporate loan growth alongside refinancing, acquisition financing and fresh capital expenditure. Private sector banks reported strong growth in corporate lending during the September quarter. RBL Bank's corporate loan book expanded 58% year-on-year, while Axis Bank reported 34% growth and ICICI Bank's domestic corporate portfolio increased 30.6%.

Kotak Mahindra Bank's corporate banking advances rose 25% while Federal Bank's corporate and investment banking portfolio increased 17%, while HDFC Bank's corporate and other wholesale advances grew 16.4%. IndusInd Bank reported 10% growth in its wholesale loan book.

"The corporate growth is largely working capital-driven," said Jaideep Iyer, executive director, RBL Bank.