As borrowing by corporates remains subdued, some lenders – banks and non-banking finance companies (NBFCs) – appear to be willing to lower loan rates to win customers, multiple sources in the banking industry told FE.
Recently, L&T Finance refinanced two road projects at rates that were 100-150 bps lower than the original cost.
“L&T Finance has recently refinanced the entire debt of Navayuga Devanahalli Tollway and Dewas Bhopal Corridor at 100-150 bps lower than the earlier rate offered by some state-owned banks.
The lender is looking for similar opportunities among renewable power projects,” a senior executive from a public sector bank said.
According to documents sourced from the Registrar of Companies, Dewas Bhopal Corridor had total debt of Rs 364.7 crore as of FY15 and had incurred a loss after tax of Rs 33.7 lakh during the year.
While Navayuga Devanahalli Tollway manages the Bengaluru-Devanahalli stretch of NH-7 that leads to Bengaluru’s Kempegowda International Airport, Dewas Bhopal Corridor is a joint venture between Welspun Enterprises and Chetak Enterprises. Last year, IDFC Alternatives had bought a 37% stake in the project from Welspun Enterprises.
Bankers believe some lenders keen on growing the book are being compelled to lower loan rates to woo customers. “Many of our large clients have either completely stopped borrowing or have moved to the bond and commercial paper (CP) market,” senior bankers observed.
Despite interest rates in the system trending down — the benchmark repo rate is down by 150 bps since the beginning of 2015 — demand for loans, particularly from the industry, remains sluggish, Reserve Bank of India (RBI) data shows.
From a high of over 20% in June 2012, the growth in bank loans to industry dropped to a multi-year low of just 0.12% in April, an FE analysis of the RBI data reveals.
One reason for this is the surplus capacity in the economy. Companies have been hesitant to add capacity at a time when visibility on demand is hazy. Moreover, CMIE pointed out in a recent update that several projects were stalled either due to the lack of environment clearances or fuel linkages.
Moreover, relatively high bank lending rates have seen companies move their borrowings to the corporate bond market or to the CP market for short-term loans.
Firms mopped up more money from the corporate bond market in each of the last two financial years compared with borrowings from banks, the RBI and Sebi data showed.
While firms raised Rs 4.58 lakh crore through the corporate bond market in FY16, bank lending to the industry grew by just 0.73 lakh crore during the year.
Similarly, while firms mopped up over Rs 1.9 lakh crore from the CP market in May 2016, their borrowing from banks actually dipped during the month (M-o-M).