Banks are expanding lending to domestic corporations at the fastest pace in more than eight years. This is a sign of a new private investment cycle starting in the world’s fifth-largest economy even as growth in large developed economies and China slows. 

That international slowdown will limit the strength of the new Indian cycle, economists say. 

Private investment in India was constrained for years by heavy indebtedness of companies and banks and by weak demand. But over the past two years, corporations and lenders have cut costs and raised equity capital, and companies have been able to spend on new capacity as demand has strengthened.

It has strengthened so much that productive capacity and working capital are now being used more intensively. That, in turn, is driving the higher demand for credit, notes Swaminathan Janakiraman, the managing director of State Bank of India (SBI), the country’s largest lender.

“The capex that is taking place is generating financing requirements across the industry and the services sector and, to a small extent, there is a shift in borrowings from bonds to loans,” adds Mr Janakiraman. “Corporate credit demand has been low for too long, and it is time for a pick-up,” he opines. SBI expects its stock of corporate loans to rise by between 14 and 15 per cent this year and by 12 per cent a year on average in 2023 and 2024. 

Annual capital spending for India’s 15,000 largest industrial companies will be Rs 4.5 lakh crore ($55 billion) in the financial year to March 2023 and Rs 5 lakh crore in each of the following two financial years, forecasts Hetal Gandhi, the director for research of CRISIL Market Intelligence and Analytics. That spending will be about a third higher than the average in three financial years before the COVID-19 crisis.