MSMEs: Drawdowns on working capital of firms and MSME borrowers rise with input costs

Mumbai: Banks are seeing increased levies on working capital limits from corporate and MSME borrowers as rising commodity prices drive up input costs. Bankers said that while the earlier use of 30-40% at large, highly rated companies was a big challenge, those limits have now been exhausted to 60-70%, raising hopes for further lending.

“Working capital drawdowns are going up on the books of companies because their input costs have gone up,” said Samuel Joseph, deputy managing director,

. “Many companies that were not using fund-based exposures at all have started using it, which will help overall corporate credit growth. 30-40% usage in large, well-rated companies was a big challenge before, today they are pushed up to 60-70%.”

WPI inflation’s record high of 15.08% in April was driven by higher prices for manufactured goods, fuel and electricity. Rising energy and metal prices due to supply-side bottlenecks have aggravated input cost pressures for domestic producers.

Last week, companies it lends to are using more of their bank-sanctioned working capital limits, at 56% now. The bank said it has visibility into credit proposals worth 4.6 lakh crore, including unused levels of working capital limits, term loans and outstanding loan proposals.

“We are seeing much better capacity utilization in terms of working capital,”

said President Dinesh Khara. “We are optimistic that in the coming days the environment will be conducive to growth in business credit.”

A recent

analysis, private sector project announcements hit an 11-year high, suggesting the first signs of a pick-up in investment activity, following the Covid-19 pandemic. According to RBI, the capacity utilization of the manufacturing sector at the aggregate level increased to 72.4%, indicating an improvement in manufacturing activities.

The recovery in economic activity and improved use of corporate credit limits should further accelerate loan growth. “In the current environment, growth opportunities are high on the business side as their working capital requirements have increased due to increased input costs,” said Prashant Kumar, MD,

. “Their dependence on money outside the banking system has decreased because banks can always give cheap money.”

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