West Asia conflict drives 15-20% surge in working capital demand at Indian banks, lifts corporate credit growth: Report
The escalation of the West Asia conflict has pushed working-capital demand at Indian banks up 15-20% over the past few months, as rising raw-material costs and longer shipping timelines put pressure on corporate cash flows, The Economic Times reported, citing bankers.
According to the report, the surge in demand for short-term credit has emerged as an additional driver of corporate loan growth among major lenders in the September quarter.
Refinancing requirements, strategic acquisitions and early signs of a revival in private capital expenditure (capex) have also contributed to the increase in corporate borrowing, ET reported.
Companies are increasingly drawing on bank credit lines to meet higher inventory costs, manage delayed shipments, and navigate supply chain disruptions, the report said.
The West Asia conflict has disrupted global trade and shipping routes, lengthening the time it takes for raw materials and finished goods to reach their destinations.
These delays have lengthened companies' cash-conversion cycles, leaving more funds tied up in inventory and receivables for extended periods, according to bankers cited by ET.
At the same time, higher crude oil prices and costlier industrial inputs have increased the amount of working capital businesses require to maintain regular operations.
The rise in working-capital demand reflects a combination of supply-chain disruptions, higher input costs and tighter financing conditions, according to the bankers cited in the report.
Longer shipping timelines have delayed inventory deliveries, while companies are spending more to procure and maintain stocks amid elevated commodity prices.
Some corporate borrowers are turning to banks as volatility in bond yields and relatively expensive capital-market funding make alternative borrowing avenues less attractive.
The increase in working-capital requirements has coincided with stronger corporate loan growth across several private- and public-sector banks during the September quarter, according to the banks' quarterly disclosures cited in the report.
RBL Bank recorded 58% year-on-year growth in its corporate or wholesale credit portfolio, followed by Axis Bank at 34% and ICICI Bank at 30.6%. Kotak Mahindra Bank reported 25% growth, while Federal Bank, HDFC Bank and IndusInd Bank recorded growth of 17%, 16.4% and 10%, respectively.
The growth figures are based on the September-quarter bank data, as per the report. The increase in corporate lending has also been supported by refinancing requirements, strategic acquisitions and early signs of a revival in private capital expenditure, ET report said
The rise in short-term borrowing requirements has also brought attention to potential risks for lenders if supply-chain disruptions and elevated input costs persist.
Banks will need to assess whether additional borrowing reflects temporary working-capital pressures or deeper stress in companies' cash flows. Prolonged shipment delays and slower receivables could affect borrowers' ability to service their debt.
The Reserve Bank of India (RBI) is also reportedly seeking information from banks on their exposure to sectors dependent on West Asian markets and those particularly sensitive to crude oil price movements.
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