SBI lures corporate loan shifts with lower interest

Written by Aftab Ahmed | Pranav Nambiar | Mumbai | Updated: Oct 31 2013, 08:05am hrs
The countrys largest lender State Bank of India (SBI) is enticing corporate borrowers to transfer loans to it from other financial institutions by offering them lower interest rates. Between April and September we have acquired a number of bigger clients. We offer them a rate that is at least 50 basis points lower than what theyre paying to get them on board, Shyamal Acharaya, deputy managing director, SBI, confirmed to FE. The undercutting, however has been around 100-150 bps,competing bankers, who did not wish to be identified, said. Top-rated corporates have saved even more. Hindalco, for instance, was able to negotiate money from SBI at 10.2%, 300 basis points lower than it had been forking out.

SBI has been aggressively trying to drive credit growth owing to its excess liquidity position, which stood at R50,000 crore in April 2013. Initiatives such as refinancing have helped reduce unutilised liquidity to around R20,000 crore now, said executives at the bank.

Among the other customers that SBI has convinced to bank with it are Nuclear Power Corporation (NPCIL) and Gujarat Urja Vikas Nigam. While SBI offered to fund Hindalcos Utkal Alumina project to the extent of R3,000 crore, NPC borrowed R1,000 crore.

The bank managed to win a bigger exposure of R2,500 crore to Gujarat Urja Vikas Nigam. That apart, it succeeded in giving Rashtriya Ispat Nigam (RINL) a loan of R1,200 crore and a loan of R1,800 crore to the Gujarat State Electricity Board. It has also lent Delhi Transport Corporation R500 crore.

Most of the companies whose loans SBI has been taking over have an external investment grade rating of at least BBB-. NPC has a A rating from Care, while RINL is rated AA by India Ratings and Research. We only lend to companies that have at least an investment grade rating so the risks are lower, Acharaya told FE.

Nevertheless, the bank is willing to give up some profitability to bag more business via the refinancing route. In earlier conversations, SBI executives had indicated that it charges a spread of 50-80 bps over its base rate for loans to companies that have an external rating of BBB. Other banks like Union Bank of India and Bank of India charge at least 100 bps above their base rate of 10.25%, according to executives at these banks.

SBI has acquired exposure from lenders like Power Finance Corporation, Bank of Baroda, Union Bank and IDBI Bank.

Executives from other banks say this is partly because their base rates are at least 50 basis points higher than SBIs base rate, which makes it difficult for them to compete.

SBIs base rate is 9.8% but most other public sector banks including Punjab National Bank and Bank of Baroda have pegged their base rates at 10.25%. SBI, which has a higher proportion of low-cost deposits, has a lower cost of funds than most banks and hence can afford to have a relatively lower base rate. At a time when corporate credit growth has slowed, the large corporate book of SBI grew 19.3% year-on-year to Rs 1.69 lakh crore for the quarter ended June 30. SBI is yet to declare earnings for the second quarter.