Banks are Lending Only to the Aam Aadmi - Chart Of The Day 14 May 2019 - Equitymaster
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Banks are Lending Only to the Aam Aadmi
May 14, 2019


After the IL&FS debacle, the NBFC sector is in a liquidity crisis. The housing finance regulator, National Housing Bank, has also restrained some entities from lending.

So, the quantum of funds as well as the cost of loans have both shot up.

Smaller public sector banks are struggling to keep themselves afloat.

The few good quality private sector banks are only lending to retail clients, most cautiously.

No wonder funding to corporates for capex has come to a standstill.

Amid this it is difficult to expect Indian companies to increase their capacities. Thus, their earnings may not grow at a fast clip.

And sooner than later their valuations will also succumb to a reality check.

But there is a silver lining to this cloud.

  • The stricter credit norms are making corporates less dependent on bank lending for their capex.
  • The new NPA recognition norms and insolvency process could put an end to willful defaults.

The cleanup of India's financial sector may be long drawn.

But it will, once and for all, rid the economy of a big growth hurdle.

It won't matter if oil prices keep spooking India's consumer inflation.

It won't matter if domestic interest rates remain steep.

Indian companies will be in a position to manage their cash flows and debt obligations across cycles.

The leaner, well capitalised financial entities will benefit the most.

They could fund the fastest growing companies to Sensex 100,000.

Data Source: RBI

This Chart Of The Day was published in The 5 Minute WrapUp - The Bitter Pill that Will Lay the Foundation for Sensex 100,000

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