ICICI Bank sees corporates borrowing Rs 1 trillion in the next one year

Corporate India's big borrowing plans are robust because the money would be spent on capacity expansion to meet a rise in demand, according to Bala Swaminathan, country head, corporate banking of ICICI Bank. Corporate India's collective need for credit could be nearly 1 trillion rupees in the next one year, and treble that amount in 3 years, he estimated.

The credit demand is likely to be driven primarily by investments in power and the oil and gas sectors, he told CRISIL MarketWire.

According to Swaminathan, the current credit growth is robust since the capacity expansions that are now being planned are backed by strong demand, which far exceeds the present supply situation. According to RBI, banks' non-food credit since Apr. 1 has risen to 762 billion rupees, compared with just 183 billion in the corresponding period last year.

"The current capacities are coming after a series of de-bottlenecking, restructuring, marginal capacity expansions," he said.

Companies at this juncture then, according to Swaminathan, have strong demand after achieving basic efficiencies and financial restructuring that enabled earlier supplies and margins growth respectively.

"There has been a structural shift in the economy where the consuming class has the buying capacity, interest rates are down," he said explaining the demand for goods and services of Indian companies.

Unlike in the past when bulk capacities were built with demand not keeping up to expectations, the current credit boom will be led by a high growth of consumer demand that may require incremental expansions up to 2008.

"We believe there is fair amount of demand. Over the next two-three years, I expect corporate India will spend around Rs 2,50,000 crore-Rs 3,00,000 crore," he said.

Much of the corporate spend would be driven by the power, oil and gas sector, followed closely by telecom and metals sector.

He estimates that many other sectors, which may corner only a small percentage of the spend but may have significant investment plans, include pharmaceutical, tourism, textile and information technology. Each of these has investments of Rs 1500 -2000 crore lined up in the next one year.

Swaminathan expects 40 of corporate India's expenditure over the next year to be funded through equity with debt accounting for the balance requirement.

Of the debt component, he expects around 40 of the total requirement to be met from the domestic debt market and the residual 20 from overseas.

Notwithstanding the overabundance of choices available to the companies, "banks are still competitive sources for funding", he said.

"Equity has always been quite expensive. And overseas is no longer cheap. Even Libor has gone up," he said.

Swaminathan doesn't expect interest rates to change in the next six to nine months. "Macro-economic indicators are not in place for interest rates to go up," he added. Later policy issues will determine the rate movement.