Rewrite PSBs are reporting rising corporate borrowing. This signals that the private sector capex cycle is acquiring traction. Several other factors are contributing to renewed interest in corporate bank lending. Bond yields have surged, which makes borrowing from banks less expensive than from the market. The economy is posting robust growth and companies are drawing more working capital to support business expansion.

Companies are underleveraged, which increases banks’ comfort in stepping up lending. Finally, demand for corporate lending is being driven by aselect group of sectors like wholesale trading, commercial real estate, power and chemicals. Years of government capex is broadening the private investment pipeline.

GDP is no less being driven principally by consumption and government. Investment is outgrowing the broader economy as capacity utilisation climbs, funded adequately by bank credit. Growth drivers are capital-intensive sectors like semiconductors, data centres, defence and RE.

Policy support through massive infra build-up and fiscal incentives to select manufacturing sectors are delivering delayed, yet expected, outcomes. All these have bumped up private sector capital formation, but it’s yet to reclaim its relative share of over a decade ago. The investment transition runs up against lingering structural uncertainty.

Companies remain cautious about committing long-term capital because of risks of de-globalisation and slow domestic real income growth. A large government borrowing programme offsets gains of better infra provisioning by keeping interest rates elevated. New generations of business groups are favouring assetlight businesses over capital-intensive industries. Yet, surge in IPOs suggests a new group will drive industry’s capital requirements in equity and bank credit. RBI sees a steady rise in private capex through bank lending and external borrowing pipelines. Despite uncertainties, private investment is broadening on strong fundamentals that should act as a tailwind in the medium term.