With the cost of funds falling fast, State Bank of India (SBI) is resorting to deep rate cuts of as much as 150-175 basis points to wean away corporate customers from other banks.
SBI believed to have offered to take over an exposure of Rs 3,000 crore to GVK’s Mumbai International Airport (MIAL) at 1.75 percentage points below the current rate on the loan.
According to two bankers familiar with the development, SBI has offered to take on the exposure at 9.75%, a rate that is unlikely to be matched by others. While the existing set of lenders, including IDBI Bank, were willing to lower the rate from 11.5%, SBI has undercut them all.
MIAL’s total borrowings, bankers said, were around Rs 8,000 crore at the end of March 2016 and the company reported a loss of Rs 85.16 crore on revenues of Rs 2,691 crore in the same period. The net loss in the previous year was Rs 319.21 crore on Rs 2,376.6 crore in revenues.
“As a corporate policy, we do not comment or respond to any speculation in the media,” a GVK spokesperson said in reply to an email.
Meanwhile, SBI deputy managing director J Packirisamy declined to respond saying the bank did not comment on individual accounts.
While SBI’s one-year marginal cost of funds based lending rate (MCLR) is the lowest in the banking system at 8.9%, MCLRs of other banks are in the range of 8.95-9.45%.
The lack of lending opportunities in the corporate sector is prompting lenders to acquire clients by lowering interest rates. Over the last one year the corporate credit growth of several banks has been sustained by refinance deals.
Generally, public sector banks have reported muted growth in the corporate sector over the past year or so while private sector banks have done relatively better. ICICI Bank reported an 8.4% year-on-year (y-o-y) growth in corporate loans in Q2FY17 while SBI’s large corporate loans grew 10.17% y-o-y.
Reserve Bank of India (RBI) data show credit to large industries was Rs 21.78 lakh crore at the end of the fortnight ended September 30, a rise of 1.4% y-o-y. The growth in the comparable fortnight of 2015 was 5.5% y-o-y. Meanwhile, total loans to all industries stood at Rs 26.52 lakh crore at the end of the September 30 fortnight, up a meagre 0.9% y-o-y.
SBI chairman Arundhati Bhattacharya had explained to FE some months back that banks were growing their corporate books primarily by “refinancing lenders who had lent at higher rates and where projects have been completed and the risks have been mitigated”. Bhattacharya observed that whenever there was an option to refinance an account, it would be done at an attractive rate since the project risks would have been mitigated and cash flows would have started coming in. The SBI chairman had added there would always be some undercutting because AAA and AA accounts are few and far between and so there is competition.
Speaking to analysts, ICICI Bank MD & CEO Chanda Kochhar recently said that her bank would continue to focus on lending to better rated clients and work towards reducing exposures in sectors impacted by the challenging operating environment.
FE had reported how SBI acquired customers such as Hindalco, Nuclear Power Corporation and Gujarat Urja Vikas Nigam by offering them interest rates which were at least 50 bps lower than what they were paying. In the case of Hindalco, the company was able to negotiate money from SBI at 10.2%, 300 basis points lower than it had been borrowing at.