Banks step up risk profile reviews

Though most bankers termed the review as an ongoing exercise, the process has been gathering steam from early June.

Banks still speak of growing their loan books by over 20 per cent, but conviction seems lacking. "Given the slowdown in demand, business projections can go haywire and lead to an increase in the risk of loan impairment. We have to be on guard," said the managing director of one of SBI's seven associate banks.

The risk is not confined to business and industry alone. Banks, especially public sector players, have to test the repayment culture in rural areas in aftermath of the Rs 71,000-crore farm loan waiver and relief scheme, he added.

Private banks have decided to go slow on retail lending due to the rising delinquency rates. Consumers are also deferring purchases due to the high interest costs.

While fresh projects are hard to come by in the wake of rising interest rates and subdued demand, a senior SBI executive said the bank is reviewing nearly 300 large companies and other mid-sized corporate entities.

Bankers across the spectrum have been lately extra cautious about lending to small and medium enterprises. This year stands out for two reasons. One, the Reserve Bank of India's prudential norms for assessing capital adequacy have already kicked in.

The economic environment has also undergone a change due to the rising costs faced by corporate clients and the imminent threat of a slowdown, a risk management head with a large public sector bank said.