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INDIA BUSINESS WORLD - October 1st October 15th 2008
BANKS TURN CAUTIOUS ON CORPORATE LENDING, REFUSE TO LEND EVEN TO BLUE CHIPS AND MFS AND THEIR FOREIGN PEERS
THE liquidity freeze in the local money market has prompted banks to stop extending fresh lines of credit to blue-chip companies, according to senior bankers.
The money squeeze was reflected in call rates, which were as high as 23%. This forced the lenders to review loans sanctioned to steel, cement, power, hospitality and infrastructure, bankers said. Many banks have refrained from financing real estate and non-banking finance companies due to their inherent risk profile.
Given the limited lending taking place between banks, a number of large companies and mutual funds (MFs) are unable to raise funds from banks. A petro major, a telecom company, a mining player and companies belonging to two of the largest corporate groups are reportedly scouting for fresh loans.
Faced with heavy redemption pressures, MFs are also looking for loans between Rs 100 crore and Rs 1,000 crore from banks, said sources. Banks have put a brake on short-term loans and also frozen secured loans, according to the senior bankers. Furthermore, they have stopped giving fresh lines of credit to new borrowers. “Considering the uncertainty in the global market, we are closely monitoring our loan books,” said AC Mahajan, CMD of Canara Bank. “Whenever interest rates go up, shortterm loans are the first casualty. Since liquidity has not completely eased, banks will continue to go slow,” said MV Nair, CMD of Union Bank of India. He added the bank would identify downstream projects that could be impacted due to the slowdown.
According to MD Mallya, CMD, Bank of Baroda, concerns over a slowdown have forced banks to refrain from funding real estate companies and NBFCs. “We are also relooking at the textile sector and continuously monitoring our loan book.”
Banks have also stopped lending to their foreign counterparts having wholesale operations in India. Most of these banks do not have strong presence in India and depend on others for their regular fund requirements.
Bankers are reviewing their loan portfolios on fears that a global slowdown could impact domestic companies. The slowdown, they said, could affect the demand scenario and thereby result in loan defaults.
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