Is a corporate credit rebound around the corner? Yes, say banks taking early bets

While the uptick is largely driven by working capital financing, some capex-linked lending and project financing deals are also resurfacing in sectors such as infrastructure, renewables, and manufacturing, senior bankers said.

At India’s largest private sector lender HDFC Bank, which had earlier slowed its wholesale book as competitive loan pricing muted loan spreads, the tone has changed.

“…[investment in capex] is very modest… it is largely working capital financing (that) we have participated in (this quarter),” chief financial officer Srinivasan Vaidyanathan said during the September quarter earnings call on 18 October.

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For the quarter just gone by, HDFC Bank’s corporate and other wholesale loan book grew 6.4% year on year and 4.7% on quarter, sharply higher than 1.7% on year growth and a 1.3% on quarter decline in the three months ended June.

This marks a turn for HDFC Bank, which had been recalibrating its balance sheet over the past few quarters following the merger with erstwhile parent HDFC Ltd.

Rival lender Axis Bank, too, pointed to renewed traction in wholesale lending, particularly in select sectors, showing early signs of investment revival.

The bank’s stance has always been growth under favourable pricing, reiterated its executive director Subrat Mohanty.

“In Q2, there were a few good opportunities that came our way, something that we have not seen in the past… in general we find that there is opportunity in the wholesale segment for us based on strong relationships and some of trends that we are seeing in certain sectors such as movement from clients making new investments,” he said.

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Axis Bank’s corporate loan book grew 20% on year and 11% on quarter at the end of September as against 9% on year and 6% on sequential rise in the prior quarter.

Rising bond yields

The pickup in corporate credit in the banking sector comes as yields on government securities maturing in 10 years rose 20 basis points (bps) to 6.5% in the September quarter over mounting geopolitical uncertainty.

In August, speciality chemicals maker Neogen Chemicals Ltd raised ₹200 crore on its A rated bonds maturing in December 2028 at a coupon of 10.5%.

Such rates in the bond market made bank loans more attractive for corporates, especially the low-rated ones.

The September quarter rise in yield was a reversal from the 25 bps fall since early February, when the Reserve Bank of India (RBI) began its interest rate easing cycle till June.

The weighted average lending rate on fresh rupee loans of scheduled commercial banks was at 8.75% in August (latest available), down from 8.81% a month earlier, RBI’s monthly data showed, making it cheaper for corporates to borrow.

Bankers broadly agree that while capex-led demand remains modest, working capital financing and project-linked funding are driving incremental growth. Most also expect momentum to strengthen in the coming quarters as sanctioned loans move to disbursement stage and as investment activity gradually picks up.

“It’s still a bit early. In Q2, you would have seen corporate credit growth because the yields were still high. And to that extent, bank credit actually picked up in Q2,” said AM Karthik, senior vice president and co-group head, Icra, adding the ratings agency had not revised its credit growth estimates for FY26 yet.

The cuts in goods and services tax rates aimed at spurring domestic demand and to partly offset the tariff impact on the exports would support credit expansion for banks and NBFCs in the near term, Icra said in a statement on 19 September.

Sector-wide uptick

Public sector banks also joined the lending rebound, buoyed by a healthy project pipeline and improved corporate balance sheets. Punjab National Bank, for instance, has total loan sanctions worth ₹1.78 trillion, which are awaiting phased disbursements.

“We are expecting good corporate loan book growth in Q3 and Q4 because of these sanctions,” said Ashok Chandra, chief executive at the bank.

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Proposals are coming from infrastructure, road projects, renewable energy, and other sections of industrial borrowers, Chandra told investors on the Q2 earnings call. Its corporate loan book recorded a nearly 8% year on year growth in the September quarter as against 7% in the previous quarter.

Bank of India reported double-digit growth of nearly 12% on year in its corporate book in Q2, with a robust disbursement pipeline. This is double the 5.5% on year rise in Q1.

“Our total pipeline, including global and domestic corporate loans, stands at over ₹70,000 crore, about 10% of our global loan book,” the bank’s chief executive Rajneesh Karnatak said. Of this, about ₹50,000 crore pertains to corporate lending alone, making the bank confident of strong disbursals in the second half of this fsical.

Even smaller public sector banks are seeing renewed traction, though pricing remains a challenge. While demand exists, the borrowing cost expectations of corporates remain unrealistically low, Indian Overseas Bank chief executive Ajay Kumar Srivastava said.

“The issue is not demand; it’s pricing,” Srivastava told Mint in an interview. “Most corporates seek loans at around 6%, which is not viable for us since our own funding costs are above that level.”

The bank, however, has a ₹15,000 crore sanctioned pipeline and expects 12-13% on year growth in its corporate loan book this year, led by manufacturing and PLI-linked sectors. PLI is short for performance-linked incentive schemes of the government of India, under which it encourages investment in domestic manufacturing with a mix of tax and other sops.