Manufacturing firms on expansion binge

Rs 200,000 crore investments in the pipeline.

Inflationary pressures notwithstanding, manufacturing companies are planning to invest as much as Rs 200,000 crore over the next two years. Bankers here said the top 300 companies had chalked out huge investments primarily for expansion and, to a much smaller extent, in new projects.

"Banks are seeing a pipeline of Rs 200,000 crore investment, which is expected to fructify over the next couple of years. We have not seen anything like this in the past," KV Kamath, managing director & CEO, ICICI Bank, told Business Standard.

And unlike in the past, companies will dip into their internal accruals for about 50 per cent of the investment.

"Most of them are talking about a 1:1 debt-equity ratio. Indian corporates are in a position to raise 50 per cent of this money internally," Kamath pointed out.

State Bank of India Managing Director Chandan Bhattacharya also said there was a distinct sign of a huge demand for credit from corporates.

"Every day we are sanctioning fresh loans and the bulk of this is to the manufacturing sector," he says. Bhattacharya, however, did not quantify the total demand of the corporate sector.

Kamath, too, said the manufacturing sector was the driver of these investments. Over the last few years, new investments had largely been driven by the services sector.

"We are not seeing too many greenfield projects. The top 300 corporate entities are going for major brownfield expansion, taking advantage of India's rising global competitiveness," the ICICI Bank CEO said.

Inflation didn't seem to be such a concern. "Even if there is a rise in interest rates I don't see any impact on investment demand," Kamath said.

Bhattacharya said there was a demand for credit from middle-rung companies too. Multinational companies were also adding capacities in India, since it had become the preferred destination for sourcing low-cost products.

Back-of-the-envelope calculations put the total debt to be raised by the 300 corporates at Rs 100,000 crore and about 50 per cent of this will come from external commercial borrowings (ECBs).

"I don't see any strain on the banking sector as companies are tapping the ECB route also. Many corporates are planning ECBs to take advantage of their export earnings," Kamath said.

The latest Reserve Bank of India data show that up to August 20, industrial credit in the banking system had gone up by Rs 58,220 crore versus a paltry Rs 5,639 crore non-food credit pick up in the comparable period last year. On a year-on-year basis, the offtake of non-food credit had doubled to Rs 177,668 crore from Rs 88,395 crore last year.

In higher gear

• Of Rs 200,000 cr, Rs 100,000 cr will come from internal generation
• Half of this debt may come through the ECB route
• Most corporates are going for brownfield expansion
• Rising interest rates won't impact India Inc's investments