In pursuit of higher net interest margin, public sector banks (PSBs) repriced or shed more than Rs 1 lakh crore of low-yielding corporate loans in the June quarter.
Three big state-run lenders — Bank of Baroda, Punjab National Bank and Canara Bank — have repriced or let go corporate loans amounting to around Rs 80,000 crore owing to low yields, sources said.
A stiff competition to attract corporate loans had brought down lending rates to even below 7% for top-rated firms. But the pricing environment has marginally improved, and demand for credit has also increased over time, senior bank officials said.
Even banks of smaller size are finding some space to relook at the pricing of corporate loans. “We have shed a top-rated PSU account of Rs 5,000 crore which was at low-yield. Besides, we would have shifted around Rs 5,000 crore of low-yielding loan accounts to MCLR in the June quarter,” said Swarup Kumar Saha, managing director and CEO, Punjab & Sind Bank.
Marginal cost of funds-based lending rate (MCLR) of most banks ranges between 7.80% and 9.80%.
EBLR Pressures Yields
A big share of corporate loans is linked to the EBLR (external benchmark lending rate), which is linked to the repo rate or the 3-month treasury bill, and ranges from 7% to 9%. For top-rated corporates, banks sometimes reduce risk premiums and lend at lower than 7%, analysts said.
Canara Bank is also pushing out low-yielding assets. The lender has repriced or shed around Rs 20,000 crore of such loans in the June quarter and is looking to continue this exercise for another Rs 15,000 crore in the second quarter, an official said.
The bank has a corporate loan book of Rs 5.29 lakh crore and a NIM of 2.52% as on June 30. The aim is to elevate the NIM to 2.60% for FY27. The bank’s net interest income touched a record quarter high of Rs 10,000 crore.
“We intend not to do sub-7% lending to win corporate clients. We will either give up loans or bring them to the MCLR levels,” said Brajesh Kumar Singh, managing director and CEO, Canara Bank.
RAM Expansion
Banks are also looking to increase their exposure to high-yielding retail loans to offset lower pricing of corporate loans. For many banks, the RAM (retail, agriculture and MSME) share in the total loan mix has gone up over the last few quarters.
Despite repricing around Rs 35,000 crore of corporate loans in the June quarter, PNB still managed to grow the segment 10% year-on-year to Rs 5.15 lakh crore. The bank will continue to reprice to earn better yields on these advances.
Bank of Baroda, which has seen a sequential drop in its corporate loan book by Rs 29,502 crore to Rs 4.27 lakh crore in Q1, sees an opportunity to move some low-yielding loans to upward rates. The strategy is to move the non-MCLR book a bit into an MCLR or near-to-MCLR book,” Managing Director and CEO Debadatta Chand told analysts in a post-earnings call.
Bank of India has shed about Rs 12,000 crore of corporate loans in the first quarter, a senior official said, adding that “there are more repricing in the pipeline”.