Banks are offering loans linked to external market benchmarks such as government securities or the MIBOR to prevent large corporate customers from migrating to the bond market, where the coupon is much lower than the banks’ marginal cost of funds-based lending rate (MCLR). The banks have seen their credit growth fall to multi-decade lows in the past few quarters as sluggish economic growth dampened demand for loans. On the other hand, many corporates have raised money through corporate bonds to refinance existing debt or to meet working capital requirements, further hurting banks’ credit offtake. The non-food credit growth stood at Rs76 lakh crore as on June 9, up 6.6% year-on-year, but lower than Rs77.88 lakh crore on March 31, 2017. “We are offering loans to some of our customer that have high credit ratings at a rate that is linked to a government bond or a treasury bill. This ensures that the customer gets a loan at a much cheaper rate,” said Sidharth Rath, president and head, corporate and transaction banking at Axis Bank. These loans are being offered for short tenures, usually between one year and two years, Rath said, adding that the move is aimed at retaining customers.
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Axis Bank’s six-month MCLR is 8.15%, while the three-month MCLR is 8%. In comparison, the yield on the 364-day treasury bill is 6.35% and the yield on the 182-day treasury bill is 6.29%. The MIBOR, or Mumbai interbank offered rate, is around 6.25%. The Reserve Bank of India, in its master guidelines on interest rate on advances, has allowed loans linked to a market determined external benchmark to be priced without being linked to the base rate of MCLR as the benchmark for determining the interest rate. The latest data available from markets regulator Sebi show that corporate bond issuance in the January-March quarter stood at Rs 2.09 lakh crore, up from Rs1.56 lakh crore in the previous quarter and Rs1.78 lakh crore in the year-ago period. The total private placement of corporate bonds on the National Stock Exchange and the BSE was Rs97,207.60 crore in April and May, data from Sebi showed, compared with a total of Rs6.41 lakh crore in 2016-17.
Writer: Shamik Paul