While the Centre has been trying to ease up access to credit by prodding public sector banks to increase their credit target by an additional Rs 56,000 crore in the final quarter of 2008-09, Corporate India would actually find borrowing from banks more difficult, thanks to the Satyam fraud. The confessions by Satyam?s disgraced founder B Ramalinga Raju that he cooked books for as long as seven years, without being detected, has taken the wind out of bankers? already sagging confidence.
Banks are trying to tie the loose ends in their due diligence process and are asking the potential corporate borrowers to explain ?each and every entry? in their books to ensure that the chances of loans turning bad are reduced to the extent possible.
?The Satyam scandal has opened up a new window of caution. The company was audited by a reputed firm, which could not unearth the gaps. We have exposure to SMEs (small scale enterprises) and a number of companies which are audited by a slew of auditors. We have to ensure the books are correct. So banks have to look at the financials carefully as those are the matter of highest concern. They should also check the track record and operations of the company,? Indian Banks? Association chairman T S Narayanasamy told FE .
The stringent procedure of due diligence is likely to render at least 10% of the companies either ineligible for loans or reduce the borrowing power of the corporate sector.
?Say, if we are to lend Rs 1,000 crore only to the corporate sector. The actual lending would fall to 90% due to the tightened norms,? public sector lender UCO Bank?s chairman and managing director (CMD) S K Goel said.
UCO Bank, he said, is checking the consistency of entries in the accounting books. ?We are checking the potential borrowers? balance sheet for the last three years to ensure that there are no erratic entries. If there is one the company is asked to explain,? Goel said.
Banks already prefer secured option to park money. Figures released by Reserve Bank of India shows that banks invested Rs 62,386 crore in government securities during the fortnight ended January 2, against negative investment of Rs 20,161 crore in the pervious 15 days. During this period, they lent Rs 11,961 crore as non-food credit. In December too, banks saw a negative growth in disbursement of non-food credit.
On January 7, Satyam Computer Services ex-chairman Raju confessed of committing an over Rs 7,000-crore fraud by artificially inflating the assets and shrinking the liabilities of the company. Many banks, including ICICI Bank, State Bank of India, Bank of Baroda, HDFC Bank and Citibank, have exposure to the IT firm or the companies promotedby Raju?s sons.
United Bank of India executive director T M Bhasin said, ?It (Satyam) is a lesson to be careful. We are verifying each and every figure in the balance sheet and if there is any irregularity, the company has to give an explanation?.
?If a company has Rs 500 crore as cash in hand and bank deposits and asks us for a loan of Rs 100 crore, we ask them to use their own margin first. It cannot be that that you sit on cash and borrow from banks. That way you would not be able to service the interest?. However, Punjab National Bank CMD K C Chakrabarty said there has been no change in the way his bank weighs the credibility of the borrower. ?An accident does not change the course of action. We are undertaking normal due diligence, which is already stringent.?