 "Banks cut lending rates to corporate sector")
Though lending to companies saw a slight pick-up in the quarter ended September, this was mostly for working capital loans. A full recovery in this segment is still a few quarters away, banks say.
To woo corporate clients, banks are offering lower interest rates, on a case-by-case basis.
Suhail Chander, head of corporate and commercial banking, IndusInd Bank, said interest rates on corporate loans had fallen on a transactional basis, though "interest rates haven't come down across the board".
Last month, growth in loans in the banking system had fallen to 9.7 per cent, compared with 17 per cent in the corresponding period last year. Bankers say there is growth in retail loans, adding it is primarily the slow growth in loans to the corporate sector that has dragged down growth in overall loans.
Lenders say they have been left with no choice but to cut rates, as companies are increasingly turning to the corporate bond market for loans. "Corporate lending rates have seen some pressure. This is because competition has increased in the corporate segment. Also, companies have also moved to borrowing more through commercial papers. Therefore, banks have to effectively make money available at a slightly lower cost," Paresh Sukthankar, deputy managing director of HDFC Bank, said in a conference call on Tuesday, following the announcement of the bank's earnings for the September quarter.
According to the Securities and Exchange Board of India, companies raised Rs 58,000 crore in September through private placement of bonds, the highest in a month since FY08. According to market estimates, the coupon rate for these bonds was 9-10 per cent, depending on the credit rating of the company. This was about 100 basis points lower than what banks have been lending at.
Lenders said this was because the corporate segment was showing signs of a recovery and, therefore, a more competitive rate environment would help them expand their loan books.
It is expected lending rates on the retail front might also see a drop. Bankers say deposit rates will have to come down first. Though slight movements have been seen in deposit rates, these primarily relate to term deposits, they add.
To woo corporate clients, banks are offering lower interest rates, on a case-by-case basis.
Suhail Chander, head of corporate and commercial banking, IndusInd Bank, said interest rates on corporate loans had fallen on a transactional basis, though "interest rates haven't come down across the board".
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Bankers say they have been reducing interest for companies by 25-50 basis points, on a transaction basis.
Last month, growth in loans in the banking system had fallen to 9.7 per cent, compared with 17 per cent in the corresponding period last year. Bankers say there is growth in retail loans, adding it is primarily the slow growth in loans to the corporate sector that has dragged down growth in overall loans.
Lenders say they have been left with no choice but to cut rates, as companies are increasingly turning to the corporate bond market for loans. "Corporate lending rates have seen some pressure. This is because competition has increased in the corporate segment. Also, companies have also moved to borrowing more through commercial papers. Therefore, banks have to effectively make money available at a slightly lower cost," Paresh Sukthankar, deputy managing director of HDFC Bank, said in a conference call on Tuesday, following the announcement of the bank's earnings for the September quarter.
According to the Securities and Exchange Board of India, companies raised Rs 58,000 crore in September through private placement of bonds, the highest in a month since FY08. According to market estimates, the coupon rate for these bonds was 9-10 per cent, depending on the credit rating of the company. This was about 100 basis points lower than what banks have been lending at.
Lenders said this was because the corporate segment was showing signs of a recovery and, therefore, a more competitive rate environment would help them expand their loan books.
It is expected lending rates on the retail front might also see a drop. Bankers say deposit rates will have to come down first. Though slight movements have been seen in deposit rates, these primarily relate to term deposits, they add.