Owing to a lack of demand for credit, banks were able to lend 21.45% less in FY15 than what they did in FY14, as incremental credit stood at Rs 5.74 lakh crore, RBI data show. According to RBI’s data for the fortnight ended March 20, banks’ outstanding non-food credit stood at Rs 64.7 lakh crore in FY15.
The pace of loan disbursals to companies has also fallen with some banks even reporting a shrunk portfolio. According to a top official at India’s largest lender, State Bank of India (SBI), project loan sanctions have been almost nil in FY15. For instance, Bank of Baroda has seen a drop in corporate loan offtake and many other top banks have seen their corporate loan book remaining flat.
However, to counter the slack demand for corporate credit, banks have turned to retail credit, apart from some working capital loan disbursals. Lack of loan demand from companies has not only been due to no incremental capital expenditure, but also because many companies have turned to more lucrative and cheaper borrowing options such as bonds. In FY14, banks lent Rs 7.31 lakh crore incrementally and, in FY13, this figure stood at Rs 6.33 lakh crore.
Ranjan Dhawan, MD & CEO, Bank of Baroda, said in an analyst call that for such a giant bank, it was not possible — and, perhaps, not even feasible — to derisk the bottom line and suddenly replace retail assets with corporate assets. “Our corporate loan book has not grown whereas our retail assets have grown,” he said.
Meanwhile, companies raised Rs 4.46 lakh crore through commercial paper (CP) and bonds till January 2015, compared with Rs 3.23 lakh crore disbursed by banks as non-food credit in the same period.
The rate of CPs with tenure of three months is between 8.7% and 8.9%, whereas bank rates for working capital loans are at the base rate, plus a premium, depending on the company. The current base rate of public sector banks is in the range of 10-10.25%.
FY15 CP issuances up 166%
Mumbai, April 2: Commercial Paper (CP) issuances rose 166% in FY15 compared with the same period last year, RBI data till March 15 show. Companies raised R1.49 lakh crore in FY15.
In FY15, a two-month commercial paper was trading at an average yield of 8.78% compared with 9.46% in FY14, whereas a three-month CP was trading at an average rate of 8.93% compared to 9.59% in the previous fiscal, data from FIMMDA show. Currently, the lowest base rate stands at 10%. However, borrowing via CPs can be 50-75 bps cheaper even if the cost of issuing CPs is taken into account. The primary market rate for a short-term AAA-rated paper was in the range of 8-9% last year.